What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-25 · 497 added, 502 removed, 807 unchanged (55% of the section changed)

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Throughout the Management’s Discussion and Analysis (MD&A) that follows, references to "Xerox Holdings" refer to Xerox Holdings Corporation and its consolidated subsidiaries, while references to "Xerox" refer to Xerox Corporation and its consolidated subsidiaries.

References herein to “we,” "us," “our,” the “Company,” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise.

References herein to “we,” "us," “our,” or the “Company,” refer collectively to both Xerox Holdings and Xerox unless the context suggests otherwise.

References to “Xerox Holdings Corporation” refer to the stand-alone parent company and do not include its subsidiaries.

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Throughout this combined Form 10-K, references are made to various notes in the Consolidated Financial Statements which appear in Part II, Item 8 of this combined Form 10-K, and the information contained in such notes is incorporated by reference into the MD&A in the places where such references are made.

Xerox Holdings' other direct operating subsidiary is CareAR, a small SaaS solutions provider, which was acquired for $9 million in 2020.

CareAR incurred approximately $1 million of Selling, administrative and general expenses in 2020, which are included in this discussion with Xerox's costs and expenses since immaterial and for ease of discussion.

Xerox Holdings' other direct subsidiary is Xerox Ventures LLC, which was established in 2021 solely to invest in startups and early/mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies.

Xerox Ventures LLC had investments of approximately $8 million at December 31, 2021.

Due to its immaterial nature, and for ease of discussion, Xerox Ventures LLC's results are included within the following discussion.

Executive Overview

Impact of COVID-19

The COVID-19 pandemic and the measures taken to prevent its spread impacted our business and presented significant challenges throughout 2020.

To reduce the transmission of COVID-19, governments, worldwide, implemented a wide range of restrictions on business and individual activities, including closures or limitations on the operations of businesses along with restrictions on travel and other actions to promote or enforce physical distancing.

The pandemic has significantly impacted how our customers use our products and services, how they interact with us, and how our employees work and provide services to our customers.

The pandemic has also presented unprecedented business challenges, and we have experienced impacts related to the COVID-19 pandemic, primarily related to impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules.

In response to the COVID-19 pandemic, we have prioritized the health and safety of our employees, customers and partners to support their needs in the current hybrid environment so work can be done flawlessly migrating between the workplace and the home-office.

The COVID-19 pandemic significantly impacted our results of operations during 2020 and we expect that there will continue to be effects through 2021.

Refer to Financial Overview for additional discussion regarding the impacts of the COVID-19 pandemic on our business in 2020.

Our expectation entering 2021 was that in-office work would normalize following 2020's wave of COVID-19 infections and the global rollout of effective vaccines.

However, the emergence of various variants of COVID-19 in 2021 resulted in many of our customers delaying their plans to return employees to the workplace and allowing employees to continue to work remotely or in a hybrid environment.

This impact resulted in a reduction in expected Post sale revenue and profits.

In the second half of the year, we also experienced an unprecedented level of supply chain disruption, in part due to the ongoing effects of the COVID-19 pandemic, with conditions deteriorating throughout the final two quarters of the year.

These disruptions resulted in revenue falling below expectations for the year, with most of the shortfall comprised of high-margin mid-range devices and Post sale revenue.

Supply chain disruptions also drove an increase in our backlog 1 of equipment and IT hardware to nearly $350 million, which is approximately 2.5 times higher than at the end of 2020.

We continue to streamline and optimize our operations and exceeded our target Project Own It savings of $375 million in 2021.

As we head into 2022, demand for our equipment remains strong as evidenced by our backlog 1 of approximately $350 million as of year-end, which is primarily comprised of high-margin office equipment.

We expect to have an elevated backlog 1 at least through the first half of the year.

As the backlog 1 clears, our equipment revenue mix is expected to improve, which should result in improvements in gross margin.

We also expect that there will be a broader return of workers to the office in the second half of 2022 and for Xerox, the correlation between return-to-work trends, page volumes, and post sale revenues remains strong, which suggests employees print when they return to the office and clients continue to value our printing services.

Although our financial results are expected to improve in 2022, our earnings for fourth quarter and full year 2021 includes an after-tax noncash goodwill impairment charge of $750 million ($781 million pre-tax) or $4.38 and $4.08 per share, respectively.

This charge largely reflects the impact that the economic disruption caused by the COVID-19 pandemic has had and is expected to continue to have on the Xerox print business.

Some of this impact is expected to be mitigated by growth of our digital services and offerings targeted for hybrid work business models.

Additionally, the Company is currently pursuing its strategy to develop and expand certain expected growth businesses, such as financing, software and innovation to offset and, eventually, exceed reduced cash flows from the print business, but this strategy will take time to develop.

Refer to the Application of Critical Accounting Policies section of the MD&A as well as Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding the Goodwill impairment.

Refer to Financial Overview for further discussion regarding additional impacts of the COVID-19 pandemic on our business in 2021 and 2020.

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(1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT services offerings.

Xerox 2021 Annual Report 27

Business Overview

With annual revenues of approximately $7.0 billion, we remain a leading global provider of digital print technology and related services, software and solutions.

Our primary offerings span three main areas:

Workplace Solutions, Graphic Communications and Production Solutions and Xerox Services:

• Workplace Solutions includes two strategic product groups, Entry and Mid-Range, which share common technology, manufacturing and product platforms.

Workplace Solutions revenues include the sale of products and supplies, as well as the associated technical service and financing of those products.

• Graphic Communications and Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements.

Our primary offerings span four main areas:

Workplace Solutions, Production Solutions, Xerox Services and FITTLE.

We disclosed at our Investor Conference on February 23, 2022, that we have rebranded our Xerox Financial Services (XFS) business, which is now known as FITTLE.

• Workplace Solutions includes two strategic product groups, Entry and Mid-Range, much of which share common solutions, apps and ConnectKey® software.

Workplace Solutions revenues include the sale of products (captured primarily as equipment sales) as well as the supplies and associated technical services and the financing of those products through FITTLE (captured as post sale revenue).

• Production Solutions are designed for customers in the graphic communications, in-plant and production print environments with high-volume printing requirements.

• Xerox Services includes a continuum of solutions and services that helps our customers optimize their print and communications infrastructure, apply automation and simplification to maximize productivity, and ensure the highest levels of security.

Our primary offerings in this area are Intelligent Workplace Services (IWS) and a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services.

In addition to our three primary offering areas described above, a smaller portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as from Software and IT Services, which are two areas of business in which we have enhanced our focus and investments.

Xerox 2020 Annual Report 26

Our primary offerings in this area are Managed Print Services (MPS), Capture & Content Services (CCS) and Customer Engagement Services (CES) as well as IT Services.

CCS and CES encompass a range of Digital Services that leverage our software capabilities in Workflow Automation, Personalization and Communication Software, Content Management Solutions, and Digitization Services.

• FITTLE (formerly XFS) is a global financing solutions business and currently offers financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through our indirect channels.

In addition to our four primary offering areas described above, a smaller but growing portion of our revenues comes from non-core streams including paper sales in our developing market countries, wide-format systems, licensing revenue, as well as from IT Services, CareAR, which is comprised of DocuShare® and XMPie, and PARC (Innovation).

Headquartered in Norwalk, Connecticut, with approximately 23,300 employees, Xerox serves customers in approximately 160 countries.

We have a broad and diverse base of customers by both geography and industry, ranging from small and medium-sized businesses (SMBs) to printing production (including graphic communications) companies, governmental entities, educational institutions and Fortune 1000 corporations.

We have a broad and diverse base of customers by both geography and industry, ranging from small and medium-sized businesses (SMBs) to printing production companies, governmental entities, educational institutions and Fortune 1000 corporations.

Our business does not depend upon a single customer, or a few customers, the loss of which would have a material adverse effect on our business.

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Optimize Operations for Simplicity

• Continuously improve operating model for greater efficiency

• Invest further in robotic process automation, augmented reality and analytics to drive efficiencies

• Reduce complexity and simplify billing and offerings

• Continuously improve operating efficiency, revenue flow-through and return on assets

• Invest in augmented reality, robotic process automation, business process outsourcing, analytics and system enhancements to drive efficiencies

Drive Revenue

• Scale IT Services in the SMB

• Grow Xerox Financial Services (XFS) as a global payment solutions business

• Expand software offerings in enterprise content management and customer experience

Re-energize the Innovation Engine

• Deliver revenue growth from 3D and the Internet of Things (IoT)

• Launch a $250 million corporate venture capital fund

• Embed PARC’s AI technology into new and existing software offerings

• Drive increased adoption and utilization of CareAR

• Scale IT Services and robotic process automation in the SMB market

• Grow our financing business as a global financing solutions business

• Expand distribution of digital solutions among existing Print and Services clients

Monetize Innovation

• Leverage $250 million corporate venture fund to bolster investment and innovation

• Add value-added equity partners to accelerate development and market penetration

• Embed PARC’s technology into new and existing businesses

Focus on cash flow and increasing capital returns

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(1) Free cash flow is defined as Operating cash flow from continuing operations less capital expenditures.

Xerox 2021 Annual Report 28

Post-sale Based Business Model

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These revenue streams generally follow equipment placements and provide some stability to our revenue and cash flows.

Key indicators of future post sale revenue include installs and related removals of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes (including the mix of pages printed on color devices) and the type and nature of related software and services provided to customers.

Key indicators of future post sale revenue include installs and related removals of printers and multifunction devices, the number and type of machines in the field (MIF), page volumes (including the mix of pages printed on our MIF, including color devices) and the type and nature of related software and services provided to customers.

Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization.

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These efforts are considered critical to making us more competitive and giving us the capacity to invest in growth and maximize shareholder returns.

Key opportunities under Project Own It include establishing more effective shared service centers (captive and through our outsource partners), rationalizing our IT infrastructure, reducing our real estate footprint, improving our supply chain management and the productivity of our supplier base.

Project Own It is on track to deliver against our 3 year gross cost reduction objective of $1.5 billion.

This project also involves evaluating the sourcing of all of our products in an effort to optimize our options.

Key opportunities under Project Own It include establishing more effective shared service centers (captive and through our outsource partners), rationalizing our IT infrastructure, reducing our real estate footprint, and improving our supply chain management and the productivity of our supplier base.

In 2021, we exceeded our gross savings target of $375 million.

Since its inception, total savings from Project Own It are approximately $1.8 billion.

We expect to generate approximately $300 million of gross savings in 2022.

This project also involves evaluating the sourcing of all of our products to optimize our options.

Our approach is to analyze our potential options both by product category and holistically to determine what sourcing makes the most strategic and economic sense.

Xerox 2020 Annual Report 27

In March 2019, as part of Project Own It, Xerox entered into a shared services arrangement with HCL Technologies (HCL) pursuant to which we transitioned certain global administrative and support functions, including selected finance functions, from Xerox to HCL.

In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization.

This will include the transition of the finance processes currently being provided by HCL.

We incurred restructuring and related costs, net of $38 million for the year ended December 31, 2021 primarily related to costs incurred to implement initiatives under our business transformation projects including Project Own It.

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New Businesses Strategy

In January 2021, we announced our intention to stand up our Software, Financing and Innovation organizations as separate and distinct businesses by 2022.

The Software business will include a growing portfolio comprised of:

In 2021, we stood up three new businesses:

CareAR, Xerox Financial Services (now known as FITTLE) and Innovation (PARC).

As a result of this effort, we believe we are positioned to begin reporting separate financial and non-financial information for each business in 2022.

CareAR Holdings (CareAR) is Xerox’s newly formed software business and is comprised of:

CareAR, Inc., an enterprise augmented reality business Xerox acquired in late 2020;

DocuShare®, a cloud-based content management system;

FreeFlow®, automation software for production print;

XMPie, a multi-channel marketing software company;

and CareAR, an enterprise augmented reality business Xerox acquired in late 2020.

Xerox Financial Services (XFS) will become a global payment solutions business, offering leasing for Xerox and third-party technology and office equipment.

This will expand the Company’s customer base, create cross-selling opportunities and provide more leasing options for small and medium-sized businesses.

The Innovation business will include the scientists and engineers located in Palo Alto, Calif.;

and XMPie, a multi-channel marketing software platform.

Together, these software assets combine to provide an AR and AI-driven visual support platform that provides real-time access to expertise for service companies, field service employees and end-use customers.

FITTLE has historically offered financing for direct channel customer purchases of Xerox equipment through bundled lease agreements and lease financing to end-user customers who purchase Xerox equipment through Xerox indirect dealer channels.

At the outset of 2021, FITTLE changed its strategy to broaden its portfolio of assets financed to include numerous growth opportunities independent of Xerox equipment and services, such as the expansion of its dealer relationships to include an increasing number of non-Xerox dealers, leveraging its existing dealer relationships to finance a wider breadth of products and forming relationships with new vendors.

Additionally, in 2021, FITTLE became the primary equipment lease provider for our XBS business.

Innovation (known as PARC Innovation, or PARC) includes the scientists and engineers located at our facilities in Palo Alto, Calif.;

Webster, N.Y.;

Cary, N.C., and Toronto and will be named PARC Innovation.

This team will be focused on incubating, productizing and commercializing disruptive technology aligned with our innovation focus areas such as 3D Printing and Digital Manufacturing, Sensors and Services for the IoT, AI and clean tech.

In the coming months, Xerox plans to establish a $250 million corporate venture capital fund to invest in startups and early and mid-stage growth companies aligned with the Company’s innovation focus areas and targeted adjacencies.

The corporate venture capital fund will further enhance the Company’s existing innovation ecosystem and drive growth through investment, commercial partnerships and co-development of new technologies.

Sales of Ownership Interests in Fuji Xerox Co., Ltd.

and Xerox International Partners

In November 2019, Xerox Holdings completed a series of transactions to restructure its relationship with FUJIFILM Holdings Corporation (FH), including the sale of its indirect 25% equity interest in Fuji Xerox (FX) for approximately $2.2 billion as well as the sale of its indirect 51% partnership interest in Xerox International Partners (XIP) for approximately $23 million (collectively the Sales).

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information related to the Sales.

The transactions with FH also included an OEM license agreement by and between FX and Xerox, granting FX the right to use specific Xerox Intellectual Property (IP) in providing certain named original equipment manufacturers (OEM’s) with products (such as printer engines) in exchange for an upfront license fee of $77 million.

The $77 million ($58 million after-tax) OEM license fee, which was recorded in Service, maintenance and rentals revenue in 2019, had the following impact on our financial results for the years ended December 31, 2020 and 2019, respectively:

Cary, N.C., and Toronto, Canada.

PARC is focused on incubating, productizing and commercializing disruptive technology aligned with innovation focus areas such as 3D Printing, Sensors and Services for the IoT, AI and clean tech.

Xerox 2021 Annual Report 29

( in millions, except per share amounts )

December 31, 2020 Year Ended

December 31, 2019

Financial Results from Continuing Operations As Reported OEM License Impact As Reported Excluding OEM License Impact As Reported OEM License Impact As Reported Excluding OEM License Impact

Total Revenue (22.5) % (0.6) % (21.9) % (6.2) % 0.8 % (7.0) %

Total Revenue - CC (1)

(22.7) % (0.7) % (22.0) % (4.7) % 0.8 % (5.5) %

Post sale revenue (22.1) % (0.9) % (21.2) % (6.4) % 1.0 % (7.4) %

Post sale revenue - CC (1)

(22.1) % (0.8) % (21.3) % (4.9) % 1.0 % (5.9) %

Gross Margin n/a n/a n/a 40.3 % 0.6 % 39.7 %

Adjusted Operating Margin (1)

n/a n/a n/a 13.1 % 0.7 % 12.4 %

EPS - GAAP n/a n/a n/a $ 2.78 $ 0.25 $ 2.53

EPS - Adjusted (1)

n/a n/a n/a $ 3.55 $ 0.25 $ 3.30

Operating Cash Flow n/a n/a n/a $ 1,244 $ 58 $ 1,186

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CC - See "Currency Impact" section for description of Constant Currency.

(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure.

In 2021 we also made progress toward our goal of monetizing and strategically diversifying our investments in innovation.

In May, we announced the formation of Eloque, a joint venture with the government of Victoria, Australia to commercialize IoT sensor-based technology and services for monitoring the structural health of bridges.

In September, we announced the formation of CareAR, in conjunction with a $10 million noncontrolling investment from digital workflow leader ServiceNow, Inc.

Although minimal in terms of revenue, we also began commercializing our 3D liquid metal printing technology through the sales and placements of ElemX 3D printing devices.

Financial Overview

Impact of COVID-19 on Our Business Operations

The COVID-19 pandemic has significantly impacted our sales of equipment and unbundled supplies as businesses hold off or delay purchases;

due to their transactional nature, we expect that these sales will continue to fluctuate and gradually improve concurrent with office building reopenings and the roll-out of vaccinations, which is anticipated to allow more of our customers' employees to return to the office.

Our bundled services contracts, on average, include a significant variable component based on print volumes, and a minimum fixed charge.

The variable charges are impacted by our customers' employees not being in the office using our equipment and services due to lock-downs or capacity restrictions in office buildings;

we expect that this contractual relationship will continue to enable us to ramp up and support our customers' needs as businesses resume operations.

With our Project Own It transformation and cost savings, we built a leaner and more flexible cost structure, and have also focused our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic.

These actions include the reduction of discretionary spend such as near-term targeted marketing programs, the use of contract employees, and the temporary suspension of 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

In addition, we also actively took advantage of available temporary government assistance measures and furlough programs to offset related employee costs.

The resurgence of the virus in several European countries and U.S.

regions in the fourth quarter of 2020 contribute to the remaining uncertainty around the trajectory, duration and economic impact of the pandemic in the near term, however, we expect that measures to control the infection rate and expand economic activity will result in moderate economic improvement in 2021.

We expect to continue our actions to mitigate the effects of the pandemic on our business operations and financial performance.

Government Assistance and Furlough Programs

In response to the COVID-19 pandemic, various governments have enacted or continue to contemplate temporary measures to provide aid and economic stimulus directly to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees.

The COVID-19 pandemic continued to have a significant effect on the Company’s operations in 2021.

Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and allowing employees to continue to work remotely or in a hybrid environment.

This impact combined with the global supply chain and logistic issues, created in part by the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the latter part of the third quarter 2021 and throughout the fourth quarter 2021.

We expect the ongoing effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as the global supply chain disruption, to delay economic recovery and continue to impact our revenues and margins, with improvements anticipated in the second half of 2022.

In response to the COVID-19 pandemic, various governments enacted various measures to provide aid and economic stimulus directly to companies through cash grants and credits or indirectly through payments to temporarily furloughed employees.

In March 2020, in response to the COVID-19 pandemic, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

In addition to including temporary changes to income and non-income-based tax laws, the CARES Act provides refundable employee retention credits and defers the requirement to remit the employer-paid portion of social security payroll taxes.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), and certain provisions from that Act were extended as part of the American Rescue Plan, which was enacted in March 2021.

Similar pay protection programs were enacted in Canada and Europe that primarily provide direct grants to companies to cover the salary and wages of employees (retained or temporarily furloughed).

In 2020, we recognized savings of approximately $107 million from these temporary measures in the U.S., Canada and Europe, including $92 million from various government assistance programs and $15 million from furlough programs.

Through the use of these programs, we have thus far been able to provide an offset to our costs, without further use of cash.

Xerox 2020 Annual Report 29

There were no material impacts to our income tax expense in 2020 as a result of the temporary changes included in the CARES Act.

In addition, we deferred payment of the employer-paid portion of social security payroll taxes through the end of calendar year 2020 to the extent not reduced by employee retention credits earned during 2020.

This deferral ended in 2020 and we expect to pay 50% of the net deferred amount in 2021 and the remaining 50% in 2022 together with amounts normally due for the employer-paid portion of social security payroll taxes in those years.

Estimated savings were recorded as follows in the Consolidated Statements of Income:

(in millions) Year Ended December 31, 2020

In 2021, we recognized savings of approximately $34 million from these various government assistance programs as compared to $107 million recognized in 2020.

Estimated savings were recorded as follows in the Consolidated Statements of (Loss) Income:

(in millions) Year Ended December 31, 2021 Year Ended December 31, 2020

Cost of sales $ — $ 1

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We continue to monitor government programs and actions being implemented or expected to be implemented to counter the economic impacts of the COVID-19 pandemic.

In December 2020, an additional $900 billion stimulus package, the Consolidated Appropriations Act, 2021, was enacted in the U.S.

extending the refundable employee retention credits into 2021.

Other governments are likewise considering new programs or the extension of existing programs.

2021 Operating Results

Total revenue of $7.0 billion in 2020 decreased 22.5% from the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.2-percentage point favorable impact from 2020 partner dealer acquisitions, partially offset by an approximate 0.6-percentage point unfavorable impact from the upfront OEM license fee of $77 million received in the prior year.

The decrease in revenue reflected a 22.1% decrease in Post sale revenue, including no impact from currency and an approximate 0.9-percentage point unfavorable impact from the OEM license fee;

and a 24.2% decrease in Equipment sales revenue, including a 0.4-percentage point favorable impact from currency.

The COVID-19 pandemic significantly impacted our 2020 revenues due to business closures and office building capacity restrictions that slowed our customers' purchasing decisions and caused lower printing volumes on our devices.

Net income from continuing operations attributable to Xerox Holdings was as follows:

Total revenue of $7.0 billion in 2021 increased 0.2% from the prior year, including a 1.6-percentage point favorable impact from currency and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions.

Total revenue for 2021 reflected the impacts from the COVID-19 pandemic as well as the global product supply and logistics constraints, which limited our ability to fulfill orders and drove an increase in our order backlog in the second half of the year.

Total revenue reflected a 1.1% increase in Equipment sales revenue, including a 1.5-percentage point favorable impact from currency, while Post sale revenue was flat, including a 1.7-percentage point favorable impact from currency.

While the COVID-19 pandemic significantly impacted our 2021 revenues as a result of business closures and office building capacity restrictions, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of 2021.

Net (loss) income from continuing operations attributable to Xerox Holdings was as follows:

Year Ended December 31, B/(W)

(in millions) 2021 2020 2019 2021 2020

Net income from continuing operations attributable to Xerox Holdings $ 192 $ 648 $ 306 $ (456) $ 342

Net (loss) income from continuing operations attributable to Xerox Holdings $ (455) $ 192 $ 648 $ (647) $ (456)

Adjusted (1) Net income from continuing operations attributable to Xerox Holdings

293 313 828 (20) (515)

Net income from continuing operations attributable to Xerox Holdings for 2020 decreased $456 million as compared to the prior year primarily reflecting lower revenues as a result of the COVID-19 pandemic, which were only partially offset by lower costs and expense, which includes savings from our Project Own It transformation actions and other actions in response to the COVID-19 pandemic, as well as lower Restructuring and related costs, net and Income tax expense.

Adjusted 1 net income from continuing operations attributable to Xerox Holdings for 2020 decreased $515 million as compared to the prior year primarily reflecting lower revenues as a result of the COVID-19 pandemic, which were only partially offset by lower cost and expense, which includes savings from our Project Own It transformation actions.

Adjustments in 2020 include Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, which included the loss on the early extinguishment of debt.

Operating cash flow provided by continuing operations of Xerox Holdings was $548 million in 2020 as compared to $1,244 million in 2019.

The decrease is primarily due to lower profits and higher levels of inventory due to decline in sales as well as lower accounts payable, accrued compensation and other liabilities due to lower spending.

These decreases were partially offset by reductions in accounts receivables, likewise due to decline in revenues, a higher run-off of finance receivables, lower placements of equipment on operating leases and lower cash tax payments.

Xerox 2021 Annual Report 30

Cash used in investing activities of continuing operations of Xerox Holdings was $246 million in 2020 reflecting acquisitions of $203 million and capital expenditures of $74 million, which were partially offset by $30 million from the sales of non-core business assets.

Cash used in financing activities of Xerox Holdings was $416 million in 2020 reflecting repayments of $2,137 million on Senior Notes and $73 million for secured borrowings, partially offset by the issuance of Senior Notes of $1,507 million and $840 million from secured borrowings, as well as payments of $300 million for share repurchases and dividend payments of $230 million.

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(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure.

We currently expect a modest recovery in 2021, however, the first quarter of 2021 will likely remain challenged due to continuing COVID-19-related lockdowns and business closures.

We expect total revenues to increase in 2021 to at least $7.2 billion, or approximately 2.5%, excluding the impact of currency.

Net loss from continuing operations attributable to Xerox Holdings for 2021 of $(455) million decreased $647 million as compared to Net income from continuing operations attributable to Xerox Holdings of $192 million in 2020.

The decrease primarily reflected the after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), which was partially offset by lower bad debt expense, non-service retirement-related costs, Restructuring and related costs, net, Income tax expense, and Transaction and related costs, net.

These benefits were partially offset by reduced temporary government assistance as well as higher supply chain cost, including higher freight and shipping costs, which accordingly reduced gross profit.

Adjusted 1 net income from continuing operations attributable to Xerox Holdings for 2021 decreased $20 million as compared to the prior year primarily reflecting reduced temporary government assistance and higher supply chain cost, including freight and shipping costs, which were only partially offset by lower bad debt expense and Income tax expense.

Adjustments in 2021 include an after-tax Goodwill impairment charge of $750 million ($781 million pre-tax), Restructuring and related costs, net and Amortization of intangible assets, as well as non-service retirement-related costs.

Operating cash flow provided by continuing operations of Xerox Holdings was $629 million in 2021 as compared to $548 million in 2020.

The increase includes the receipt of an upfront prepaid fixed royalty from FUJIFILM Business Innovation Corp.

(formerly Fuji Xerox Co., Ltd.) of $100 million, and primarily reflects higher cash from working capital 2 and lower accrued compensation, partially offset by a lower run-off of finance receivables and higher cash tax payments.

Cash used in investing activities of continuing operations of Xerox Holdings was $85 million in 2021, reflecting capital expenditures of $68 million and acquisitions of $53 million, which were partially offset by proceeds from sales of non-core business assets of $44 million.

Cash used in financing activities of Xerox Holdings was $1,310 million in 2021, reflecting payments of $518 million on secured borrowing arrangements, partially offset by proceeds of $311 million on a new secured financing arrangement, as well as payments of $888 million for share repurchases and dividend payments of $206 million.

We currently expect 2022 revenue to grow to $7.1 billion in actual currency (and remain flat at $7.0 billion at constant currency 1 ).

We expect revenue growth in 2022 to be weighted to the second half of 2022 as the supply chain is likely to remain challenged through the first half of the year.

Post sale revenue growth is expected to track a return of workers to the office, which we assume will likewise occur in the second half of the year.

Similar to revenue, we expect profitability to be weighted to the second half of 2022.

We expect gross margin to be negatively affected by supply chain disruption through at least the first half of the year.

We began implementing price increases for equipment supplies and services in 2021, which will partially offset elevated shipping and logistic costs.

Furthermore, as supply chain conditions and page volumes improve, we expect gross margin to benefit from a more favorable equipment and revenue mix.

We are confident in our ability to generate cash and plan to continue our capital allocation policy of returning at least 50% of our annual free cash flow to shareholders.

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During 2022, we expect to opportunistically make share repurchases utilizing our remaining share repurchase authorization of approximately $113 million.

Macro Economic and Market Factors

Tariffs - Our business, results of operations and financial condition may be negatively impacted by a potential increase in the cost of our products as a result of new or incremental trade protection measures such as, increased import tariffs, import or export restrictions and requirements and the revocation or material modification of trade agreements.

Beginning in the fourth quarter of 2019 and extending into 2020, incremental tariff costs negatively impacted gross margin.

We expect margins will continue to be negatively impacted in future periods as a result of an increase in the cost of our imported products due to higher import tariffs, although the year-over-year impact should lessen in 2021 due to mitigation efforts.

We continue to take actions to mitigate the impact of these tariffs to the extent possible, such as raising prices on certain products.

Brexit - On January 31, 2020, the United Kingdom (U.K.) formally left the European Union (E.U.) when the U.K.-E.U.

Withdrawal Agreement became effective.

Under the Withdrawal Agreement, a transition period began that ran until December 31, 2020.

In general, E.U.

law no longer applies in the U.K.

except where, at least temporarily, it has been retained as U.K.

law (though there are certain exceptions regarding the application of E.U.

regulations in Northern Ireland).

On December 24, 2020, the European Commission reached a trade agreement with the U.K.

on the terms of its future cooperation with the E.U.

(Trade and Cooperation Agreement or TCA).

The TCA offers U.K.

companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas;

however, economic relations between the U.K.

will now be on more restricted terms than existed previously.

At this time, we cannot predict the impact that the TCA and any future agreements will have on our business, suppliers and customers.

However, we continue to assess the situation and expect to take necessary steps to mitigate any potential volatility, increased costs or disruptions to our supply chain or customers that may result from this situation.

For the year ended December 31, 2020, revenues and assets in Europe, including the U.K., represented approximately 27% of both our consolidated revenues and total assets.

Xerox 2020 Annual Report 31

_____________

(1) Refer to the "Non-GAAP Financial Measures" section for an explanation of this non-GAAP financial measure.

(2) Working capital, net reflects Accounts receivable, net, Inventories and Accounts payable.

Currency Impact

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Dollar is normally not the functional currency.

As a result, foreign currency translation had a 0.2-percentage point favorable impact on revenue in 2020 and a 1.5-percentage point unfavorable impact on revenue in 2019.

As a result, foreign currency translation had a 1.6-percentage point favorable impact on revenue in 2021 and a 0.2-percentage point favorable impact on revenue in 2020.

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Application of Critical Accounting Policies

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The impact of such changes could be material to our results of operations and financial condition in any quarterly or annual period.

As discussed above (see Impact of COVID-19 on Our Business Operations ), during 2020 the Company was significantly impacted by the economic disruption caused by the COVID-19 pandemic.

This disruption required us to review the majority of our estimates to ensure we appropriately considered the impacts caused by the COVID-19 pandemic.

As the extent and duration of the impacts from the COVID-19 pandemic remain uncertain, the Company’s estimates and assumptions may evolve as conditions change.

As discussed above (see Impact of COVID-19 on Our Business Operations ), during 2021 the Company continued to be impacted by the economic disruption caused by the COVID-19 pandemic.

This disruption required us to continue our increased review of the majority of our estimates to ensure we appropriately considered the impacts caused by the COVID-19 pandemic.

As the extent and duration of the impacts from the COVID-19 pandemic continue, the Company’s estimates and assumptions may evolve as conditions change.

Specific risks associated with these critical accounting policies are discussed throughout the MD&A, where such policies affect our reported and expected financial results.

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Revenues under these bundled lease arrangements are allocated considering the relative standalone selling prices of the lease and non-lease deliverables included in the bundled arrangement.

The allocation of revenue among the elements –

Xerox 2020 Annual Report 32

equipment vs.

The allocation of revenue among the elements – equipment vs.

post sale (service, supplies and financing) – has remained fairly consistent at approximately 25% and 75%, respectively, over the past three years.

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Total sales of equipment, supplies and parts to distributors and resellers were $1,130 million for the year ended December 31, 2021 and provisions and allowances recorded on these sales were approximately 25% of the associated gross revenues.

Service Arrangements :

Revenues associated with our service arrangements – maintenance and document management - are generally recognized as maintenance and printing services are rendered, which is generally on the basis of the number of images produced.

Accordingly, this recognition methodology requires us to estimate customer usage at the end of a period since the customer is typically not invoiced for that usage until the following period.

Normally this estimation process is straight-forward and objective based on our significant history with different types of customers and device usage as well as the fact that a majority of our devices have connectivity to Xerox so we can remotely read and collect usage data.

In addition, our service arrangements normally include a minimum volume charge together with a variable charge, so the estimation process is limited to the variable component, which will vary based on the channel and geography.

However, the impacts from the COVID-19 economic disruption that began in March 2020, as well as the related shutdowns of some of our customers, required us to further review our estimation process for the variable component to ensure we properly and objectively captured the impacts of the decline in volumes and did not solely rely on historical usage data.

We will continue to assess the usage data of our customers to ensure we properly adjust historical averages and recognize revenue consistent with those revised usage patterns and ultimately what is invoiced to the customer.

Xerox 2021 Annual Report 32

Allowance for Doubtful Accounts and Credit Losses

Consistent with our adoption of ASU 2016-13 effective January 1, 2020 (Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information), the allowance for doubtful accounts and credit losses is based on an assessment of past collection experience as well as consideration of current and future economic conditions and changes in our customer collection trends.

We recorded bad debt provisions of $116 million, $46 million and $36 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018, respectively.

Reserves, as a percentage of trade and finance receivables, were 4.8% at December 31, 2020, as compared to 3.0% at December 31, 2019 and 2018, respectively.

The allowance for doubtful accounts and credit losses is based on an assessment of historical collection experience as well as consideration of current and future economic conditions and changes in our customer-specific collection trends.

Our methodology includes an expected loss model that incorporates an assessment of current and future economic conditions.

We recorded bad debt provisions of $7 million, $116 million and $46 million in Selling, administrative and general (SAG) expenses in our Consolidated Statements of (Loss) Income for the three years ended December 31, 2021, 2020 and 2019, respectively.

Reserves, as a percentage of trade and finance receivables, were 4.3% at December 31, 2021, as compared to 4.8% and 3.0% at December 31, 2020 and 2019, respectively.

We continue to assess our receivables portfolio in light of the current economic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts.

The significant increase in bad debt provision and reserve percentage in 2020 are principally due to the impact of the COVID-19 pandemic on our customers.

In assessing the level of provision and related reserve for 2020, we critically assessed current and forecasted economic conditions as a result of the COVID-19 pandemic to ensure we objectively included those expected impacts in the determination of our reserve.

Our assessment also included current portfolio credit metrics and the level of reserves and write-offs we recorded on our receivables portfolio during the credit crisis in 2008/09 as additional reference points to objectively determine the adequacy of our allowance.

As discussed above, we estimated our provision for doubtful accounts based on historical experience, expected future economic conditions and customer-specific collection issues.

Our methodology was updated in 2020 consistent with the adoption of ASU 2016-13 , but is essentially consistent with prior periods, as our previous methodology for assessing the adequacy of our allowance for doubtful accounts for finance receivables, the larger component of our receivables reserves, incorporated an expected loss model and the methodology for both allowances included an assessment of current economic conditions.

The significant increase in bad debt provision and reserve percentage in 2020, as compared to 2019, was principally due to the impact of the COVID-19 pandemic on our customers.

In assessing the level of provision and related reserve for 2020, we critically assessed current and forecasted economic conditions as a result of the COVID-19 pandemic at the time to ensure we objectively included those expected impacts in the determination of our reserve.

That assessment resulted in the recognition of a $60 million incremental bad debt provision in the first quarter 2020.

This increased provision was primarily related to finance receivables due to their larger balance and long-term nature.

In 2021 we recorded approximately $31 million of bad debt reversals reflecting improvements in the macroeconomic environment as well as lower write-offs as a result of the COVID-19 pandemic.

During the five year period ended December 31, 2021, our reserve for doubtful accounts ranged from 3.0% to 4.8% of gross receivables.

Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the December 31, 2021 rate of 4.3% would change the 2021 provision by approximately $20 million.

Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information regarding our adoption of ASU 2016-13 and Note 7 - Accounts

Xerox 2020 Annual Report 33

Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our allowance for doubtful accounts.

Refer also to the Selling, Administrative and General Expenses (SAG) section for additional discussion regarding the incremental bad debt provision recorded in the first quarter 2020 primarily related to the economic impact of the COVID-19 pandemic.

Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Note 7 - Accounts Receivable, Net and Note 8 - Finance Receivables, Net in the Consolidated Financial Statements for additional information regarding our policy with respect to the Allowance for Doubtful Accounts and Credit Losses.

Pension Plan Assumptions

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Differences between these assumptions and actual experiences are reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future periods.

Cumulative net actuarial losses for our defined benefit pension plans of $2.3 billion as of December 31, 2020 decreased by $176 million from December 31, 2019, primarily due to the excess of actual returns over expected returns and the recognition of actuarial losses through amortization and U.S.

settlement losses, partially offset by lower discount rates and the resultant increase in the Projected Benefit Obligation (PBO) as well as currency.

Cumulative net actuarial losses for our defined benefit pension plans of $1.7 billion as of December 31, 2021 decreased by $661 million from December 31, 2020, primarily due to the increase of the discount rates and the resultant decrease in the Projected Benefit Obligation (PBO), excess of actual returns over expected returns, the recognition of actuarial losses through amortization and U.S.

settlement losses as well as currency.

The total actuarial loss at December 31, 2021 is subject to offsetting gains or losses in the future due to both changes in actuarial assumptions and future experience and will be recognized in future periods through amortization or settlement losses.

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During 2021, the actual return on plan assets was a gain of $504 million as compared to an expected return of $325 million, with the difference largely due to positive equity market returns, the positive impact of decreasing interest rates on our fixed income investments and the impact of our hedging portfolio in the U.S.

When estimating the 2021 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in light of current economic conditions, and our investment strategy and asset mix with respect to the plans' funds.

The weighted average expected rate of return on plan assets we will use in 2021 is 3.9% with the decrease from 2020 primarily in our non-U.S.

When estimating the 2022 expected rate of return, in addition to assessing recent performance, we considered the historical returns earned on plan assets, the rates of return expected in the future, particularly in

Xerox 2021 Annual Report 33

light of current economic conditions, and our investment strategy and asset mix with respect to the plans' funds.

The weighted average expected rate of return on plan assets we will use in 2022 is 3.9% with no change from 2021.

Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is the rate that we use to discount our future anticipated benefit obligations.

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the rate used to calculate our obligations as of December 31, 2020 and our 2021 expense was 1.6%.

The decrease reflects lower interest rates in both U.S.

The increase reflects higher interest rates in both U.S.

Holding all other assumptions constant, the following table summarizes the estimated impacts of a 0.25% change in the discount rate and a 0.25% change in the expected return on plan assets:

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(365) 400 N/A N/A

Xerox 2020 Annual Report 34

One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is settlement losses.

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Retiree health benefit plans (3)

(5) (55) (63) (65)

Total Benefit Plan Expense $ 5 $ (47) $ 14 $ 93

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settlement losses.

(2) The decrease in 2020 reflects the Company's decision to suspend and not make the 2020 employer matching contribution to our U.S.

(2) The decrease in 2021 and 2020 reflects the Company's decision to suspend and not make the 2021 or 2020 employer matching contribution to our U.S.

based 401(k) savings plans for salaried employees.

The employer matching contribution is expected to be resumed and provided for in 2022.

(3) The 2018 U.S.

Retiree Health Plan amendment was fully amortized by December 31, 2021.

Accordingly, we estimate amortization of prior service credits in 2022 to decrease by approximately $50 million, as compared to 2021.

Xerox 2021 Annual Report 34

The following is a summary of our benefit plan funding for the three years ended December 31, 2021, 2020 and 2019, as well as estimated amounts for 2022:

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(1) The difference between the estimated funding amount and the estimated expense in 2022 of $20 million is due to estimated contributions for our U.S.

based 401(k) savings plan expensed in 2021 as earned but which are expected to be contributed in January of 2022.

Contributions to our U.S.

Defined benefit plans in 2020 include $25 million associated with our non-qualified plan and $10 million for one of our tax-qualified defined benefit plans.

Estimated contributions to our U.S.

Defined benefit plans in 2021 are associated with our non-qualified plan as no other amounts were required to meet the minimum funding requirements for our tax qualified plans.

based 401(k) savings plans for salaried employees expensed in 2022 as earned but which are expected to be contributed in January of 2023.

The 2021 U.S.

Defined benefit plans contributions did not include any contributions for our domestic tax-qualified defined benefit plans because none were required to meet the minimum funding requirements.

There are no contributions required in 2022 for our U.S.

tax-qualified defined benefit plans to meet the minimum funding requirements.

Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding defined benefit pension plan assumptions, expense and funding.

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In addition, our provision will change based on discrete or other nonrecurring events such as audit settlements, tax law changes, changes in valuation allowances, etc., that may not be predictable.

Xerox 2020 Annual Report 35

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and the amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit carryforwards.

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In determining the amount of deferred tax assets that are more-likely-than-not to be realized, we considered historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies.

Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation of our allowance against our deferred tax assets.

As a result of the COVID-19 pandemic, we reviewed the valuation allowances to determine if any change was required based on the rapid change in the economic environment and the expected changes in our financial projections resulting from the impacts of the COVID-19 pandemic.

Our effective tax rate for the year ended December 31, 2020 included an approximate 9.9-percentage point impact for additional valuation allowances, which partly reflect the negative impacts of the COVID-19 pandemic.

Increases to our valuation allowance, through income tax expense, were $25 million, $16 million and $3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

There were other (decreases) increases to our valuation allowance, including the effects of currency, of $(28) million, $(14) million and $(41) million for the years ended December 31, 2020, 2019 and 2018, respectively.

Refer to Note 20 - Income and Other Taxes in the Consolidated Financial Statements for additional information regarding the valuation allowance against our deferred tax assets.

Our valuation allowance (decreased) increased through income tax expense by approximately $(9) million, $25 million and $16 million for the years ended December 31, 2021, 2020 and 2019, respectively.

There were other decreases to our valuation allowance, including the effects of currency, of $(30) million, $(28) million and $(14) million for the years ended December 31, 2021, 2020 and 2019, respectively.

These did not affect income tax expense in total as there was a corresponding adjustment to Deferred tax assets or Other comprehensive income.

The following is a summary of gross deferred tax assets and the related valuation allowances for the three years ended December 31, 2020:

The following is a summary of gross deferred tax assets and the related valuation allowances for the years ended December 31, 2021, 2020 and 2019:

Year Ended December 31,

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Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate, as well as impact our operating results.

Xerox 2021 Annual Report 35

Unrecognized tax benefits were $107 million, $115 million and $127 million at December 31, 2021, 2020 and 2019, respectively.

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The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets.

These estimates can include, but are not limited to, future expected cash flows of acquired customers, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates.

These estimates can include, but are not limited to, future expected cash flows of acquired customers, development of new offerings, acquired technology and trade names from a market participant perspective, as well as estimates of useful lives and discount rates.

Management’s estimates of fair value are based upon assumptions believed to be reasonable and when appropriate, include assistance from independent third-party valuation firms.

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Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Refer to Note 5 - Acquisitions in the Consolidated Financial Statements for additional information regarding the allocation of the purchase price consideration for our acquisitions.

Refer to Note 5 - Acquisitions and Investments in the Consolidated Financial Statements for additional information regarding the allocation of the purchase price consideration for our acquisitions.

Our Goodwill balance was $3.3 billion at December 31, 2021.

We assess Goodwill for impairment at least annually, during the fourth quarter based on balances as of October 1st, and more frequently on an interim basis if we believe indicators of impairment exist.

The application of an interim or the annual Goodwill impairment test begins with the

Xerox 2020 Annual Report 36

identification of reporting units, which requires judgment.

The application of an interim or the annual Goodwill impairment test begins with the identification of reporting units, which requires judgment.

Consistent with the determination that we have one operating segment, we determined that there is one reporting unit and therefore we tested Goodwill for impairment at the Company or entity level.

The process of evaluating the potential impairment of Goodwill is highly subjective and requires significant judgment.

Our review of impairment starts with an assessment of qualitative factors to determine whether events or circumstances lead to a determination that it is more-likely-than-not that the fair value of the Company is less than net book value.

Our qualitative assessment of the recoverability of Goodwill, whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific factors.

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The selected multiples consider our entity's growth, profitability, size and risk relative to those of the selected publicly traded companies.

In the second quarter 2020, as a result of the continued negative financial impacts from the COVID-19 pandemic on our current and near-term future operations, the expected slower recovery during the latter half of 2020 as businesses return to their respective offices, as well as a sustained market capitalization below our book value, we determined there was a triggering event requiring an interim quantitative evaluation of Goodwill.

As a result of limited market comparables due to companies not providing guidance in this current economic environment, our interim quantitative evaluation of Goodwill in the second quarter 2020 was based solely on the income approach to estimate fair value.

The income approach was based on the discounted cash flow method of the Company's estimates of future forecasted financial performance including revenues, gross margins, operating expenses, and taxes, as well as working capital and capital asset requirements.

Our estimates regarding future forecasted cash flows accordingly reflected consideration of the negative financial impacts from the COVID-19 pandemic on our current and future operations as well as expected recovery scenarios and we believe provided a result that was equally or more representative of the fair value at that time given the circumstances.

After completing our interim impairment review, we concluded that Goodwill was not impaired in the second quarter 2020.

Although business performance improved in the second half of 2020, the COVID-19 pandemic continued to have a significant impact on the Company’s revenues, expenses, cash flows and market capitalization in 2020.

As a result of these impacts as well as related macroeconomic and industry factors, we elected to utilize a quantitative model for the assessment of the recoverability of our Goodwill balance for our annual fourth quarter 2020 impairment test.

After completing our quantitative impairment review, we concluded that Goodwill was not impaired.

Based on various forecast models, which we believe reflect the inherent uncertainty of the future, we estimated that the excess of fair value over carrying value ranged between 15% and 20%.

This estimate reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows that ranged from 7.75% to 8.25%.

Similar to the second quarter 2020 assessment, we believe the heavier weighting to the income approach was appropriate due to the inherent limitations of a market comparison during a year impacted by the COVID-19 pandemic.

We likewise believe the discount rate applied was reasonable based on the estimated capital costs of applicable market participants and an appropriate company-specific risk premium that reflects current market and industry conditions.

We also ran sensitivity cases on both the income/market allocation as well as the discount rate and, although in certain scenarios our excess fair value declined to approximately 10%, no impairment was indicated.

The COVID-19 pandemic continued to have a significant effect on the Company’s operations impacting revenues, expenses, cash flows and market capitalization in 2021.

Although business results improved in the first half of 2021 and the Company was meeting expectations, the emergence of new COVID-19 variants during the year resulted in many of our customers delaying their plans to return employees to workplaces and continuing to work remotely and in a hybrid environment.

This impact combined with the global supply chain and logistic issues, created in part by

Xerox 2021 Annual Report 36

Although our current results and our internal future forecasts clearly indicate that Xerox has been and will continue to be significantly impacted by the economic disruption caused by the COVID-19 pandemic, based on a review of macroeconomic and industry considerations as well as internal growth strategies, the business is expected to continue to recover in 2021 with the expectation of a return to normal trends by 2023.

This expectation is extended a year from the expectation in the second quarter 2020 of a return to normal trends by 2022, primarily due to recent economic data that suggests a slower recovery of the global economy before the full benefits from the distribution of vaccines and other therapies materialize to facilitate the reopening of businesses that closed and the return of more employees back to the office.

In addition, consistent with our historical results, we believe we have the ability, within a relevant range, to offset potential delays in the recovery of our revenue base with cost reductions and productivity improvements to help manage and maintain our projected level of cash flows.

Lastly, although our estimates of the fair value of the entity were in excess of our market capitalization, we believe the implied premiums that would be indicated at net book value or at our estimated fair values are reasonable.

In performing its assessment, the Company believes it has made reasonable estimates based on the facts and circumstances that were available as of the reporting date in light of the continuing impacts from the COVID-19 pandemic.

the COVID-19 pandemic, had a negative effect on the Company’s results particularly in the third and fourth quarter of 2021.

As a result of these impacts and projections of these impacts on our future operating results, as well as a sustained market capitalization below book value, we elected to utilize a quantitative model for the assessment of the recoverability of our Goodwill balance for our annual fourth quarter 2021 impairment test.

After completing our annual impairment test, we concluded that the estimated fair value of the Company - our single segment and reporting unit - had declined below its carrying value.

As a result, we recognized an after-tax non-cash impairment charge of $750 million ($781 million pre-tax) related to our goodwill for the year ended December 31, 2021.

In estimating the fair value of our single reporting unit, our analysis reflected a 75/25 allocation between the income and market approach and the application of a discount rate applied to our projected cash flows of approximately 7.75%.

The heavier weighting to the income approach was consistent with the prior year and reflects the inherent limitations of a market comparison.

We ran sensitivity cases on the discount rate and, although in certain scenarios our fair value declined further, we believe the implied premiums that would be indicated at our estimated fair value are reasonable.

Our current results and our internal future forecasts clearly indicate that Xerox has been and will continue to be significantly impacted by the economic disruption caused by the COVID-19 pandemic.

This includes a recognition that two years into the pandemic, the transition to more remote and hybrid work environments will continue to have an expected impact on the print business as compared to its pre-pandemic levels.

Some of this impact is expected to be mitigated by providing additional digital services and offerings targeted for the hybrid business model.

Our business forecasts reflect these developments, including an easing of the supply chain and logistics issues encountered in 2021 and although our operating results are expected to improve, projected revenues and cash flows are not expected to return to the levels achieved prior to the commencement of the COVID-19 pandemic.

While the Company is currently pursuing a strategy to develop and expand certain expected growth businesses such as financing, software and innovation to offset and eventually exceed the reduced cash flows from the print business, this strategy carries an increased level of implementation risk consistent with all new business pursuits.

However, the determination of fair value includes assumptions that are subject to risk and uncertainty.

The discounted cash flow calculations are dependent on subjective factors including the timing of future cash flows and the discount rate.

If assumptions or estimates in the fair value calculations change or if future cash flows vary from what was forecasted, including those assumptions relating to the duration and severity of the financial impact from the COVID-19 pandemic, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

We will continue to monitor developments in 2021 including updates to our forecasts as well as our market capitalization and an update of our assessment and related estimates may be required in the future as the situation evolves.

If the extent and duration of the economic disruption caused by the pandemic is longer or more severe than currently estimated, and actions taken by the Company do not sufficiently compensate for those impacts, there could be a material impact to our revenues and expected cash flows which in turn could negatively impact the recoverability of our Goodwill balance.

The discounted cash flow calculations are dependent on subjective factors including the timing and amount of future cash flows and the discount rate.

If assumptions or estimates used in the fair value calculations change, including assumptions related to future cash flows as well as the duration and severity of the COVID-19 pandemic and the supply chain and logistics issues and our ability to initiate management actions to recover from those issues, it may result in a further decline in our estimated fair value and trigger future impairment charges.

We will continue to monitor developments in 2022 including updates to our forecasts as well as our market capitalization and an update of our assessment and related estimates may be required in the future.

Subsequent to our fourth quarter impairment test, we did not identify any triggering events that required an update to the annual impairment test.

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Total Revenue $ 7,038 $ 7,022 $ 9,066 0.2 % (22.5) % (1.4) % (22.7) % 100 % 100 % 100 %

Reconciliation to Consolidated Statements of Income:

Reconciliation to Consolidated Statements of (Loss) Income:

Sales $ 2,582 $ 2,449 $ 3,227 5.4 % (24.1) % 3.9 % (24.3) %

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$ 7,038 $ 7,022 $ 9,066 0.2 % (22.5) % (1.4) % (22.7) % 100 % 100 % 100 %

Xerox Services $ 2,756 $ 3,406 $ 3,621 (19.1) % (5.9) % (19.2) % (4.0) % 39 % 38 % 37 %

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(1) Refer to the "Geographic Sales Channels and Product and Offerings Definitions" section.

Total revenue decreased 22.5% for the year ended December 31, 2020 including a 0.2-percentage point favorable impact from currency and an approximate 1.2-percentage point favorable impact from 2020 partner dealer acquisitions, partially offset by an approximate 0.6-percentage point unfavorable impact from a one-time upfront OEM license fee of $77 million received in the prior year.

Total revenue decreased 6.2% for the year ended December 31, 2019 compared to the prior year, including a 1.5-percentage point unfavorable impact from currency and an approximate 0.8-percentage point favorable impact from the OEM license fee.

The biggest impact from the pandemic occurred in the second quarter 2020.

The rate of revenue declines in our business moderated through the third quarter 2020, consistent with business reopenings.

This trend continued in the earlier part of the fourth quarter, however, the resurgence of the virus in several European countries and U.S.

regions at the end of the year halted the recovery in the latter part of the fourth quarter and, as a result, our rate of revenue decline during the fourth quarter remained virtually unchanged as compared to the third quarter after excluding the one-time OEM license fee received in the prior year, as described above.

Geographically, revenue declines from our EMEA operations were smaller, primarily as a result of the favorable impact from recent acquisitions in the region, as well as higher installation of mono devices in our developing regions of EMEA associated with our hybrid workplace promotions.

The EMEA region also benefited from wider reopenings of workplaces and economies earlier in 2020, as compared to our Americas Organization, for which reopenings did not begin until later in the third quarter 2020.

Revenue declines in our Americas Organization were larger in our indirect channels in the U.S, whereas higher sales of IT Services through our XBS sales organization, as well as higher sales to our U.S.

government accounts and higher installs of our mono personal printers in Latin America provided a partial offset.

Total revenues included the following:

Total revenue increased 0.2% for the year ended December 31, 2021 as compared to the prior year, including a 1.6-percentage point favorable impact from currency, and an approximate 0.5-percentage point favorable impact from 2021 and 2020 acquisitions.

Revenue reflected global product supply logistics constraints which limited our ability to fulfill orders and drove an increase in our order backlog 1 in the second half of the year.

The COVID-19 pandemic also affected our revenues by limiting office occupancy;

however, the progress of vaccinations and the gradual reopening of workplaces resulted in higher year-over-year page volumes for most of the year.

Total revenue decreased 22.5% for the year ended December 31, 2020 compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.2-percentage point favorable impact from 2020 partner dealer acquisitions, partially offset by an approximate 0.6-percentage point unfavorable impact from a one-time upfront OEM license fee of $77 million received in the prior year.

The decline in revenue primarily reflected the effects the global pandemic on IT spending and office attendance.

During 2021, our business continued to be impacted by the COVID-19 pandemic.

The prolonged impact of the virus, including the Delta and Omicron variants, drove many of our customers to delay their plans to return employees to workplaces.

We continued to see a correlation between the roll-out of vaccinations and the return of employees to the workplace, and the gradual recovery of our post sale revenues, but page-volume-driven Post sale revenue was lower than anticipated in the beginning of the year.

In addition, global supply chain issues, created in part by the COVID-19 pandemic, resulted in an unprecedented level of disruption, leading to shortages and delays in the receipt of our products and third-party IT hardware.

Supply chain disruptions resulted in lower than anticipated equipment and IT hardware sales, higher transportation and logistics costs.

Continued strength in demand for our equipment led to a nearly 150% increase in our order backlog 1 .

We expect the effects of the COVID-19 pandemic, including the potential emergence of new variants, as well as global supply chain disruptions, to continue to affect our revenues and margins at least through the first half of 2022.

Geographically, revenue increased in our EMEA region and declined in our Americas region during 2021.

In EMEA, we have a larger presence across SMB businesses, which generally recovered faster and showed greater resiliency against pandemic resurgences than larger enterprises.

Revenue decreased in our North American operations, which were more significantly impacted by shipping and logistics constraints, which were further amplified by labor shortages within the North American transportation industry.

North America also has a higher proportion of large enterprise customers, who are generally experiencing a slower pace of return to workplaces.

______________

(1) Order backlog is measured as the value of unfulfilled sales orders, shipped and non-shipped, received from our customers waiting to be

installed, including orders with future installation dates.

It includes printing devices as well as IT hardware associated with our IT service offerings.

Xerox 2021 Annual Report 38

Total revenues included the following:

Post sale revenue

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Post sale revenue also includes transactional IT hardware sales and implementation services primarily from our XBS organization.

For the year ended December 31, 2020, Post sale revenue decreased 22.1% compared to the prior year with no impact from currency and an approximate 0.8-percentage point unfavorable impact from the upfront OEM license fee in the prior year, excluding the impact of currency.

For the year ended December 31, 2019, Post sale revenue decreased 6.4% compared to the prior year including a 1.5-percentage point unfavorable impact from currency and an approximate 1.0-percentage point favorable impact from the OEM license fee, excluding the impact of currency.

For the year ended December 31, 2021, Post sale revenue was flat as compared to the prior year with a 1.7-percentage point favorable impact from currency.

For the year ended December 31, 2020, Post sale revenue decreased 22.1% as compared to the prior year with no impact from currency and an approximate 0.8-percentage point unfavorable impact from an upfront OEM license fee in the prior year, excluding the impact of currency.

Post sale revenue is comprised of the following:

Services, maintenance and rentals revenue includes rental and maintenance revenue (including bundled supplies) as well as the post sale component of the document services revenue from our Xerox Services offerings.

◦ For the year ended December 31, 2020, these revenues decreased 22.3%, including a 0.2-percentage point favorable impact from currency and an approximate 1.1-percentage point unfavorable impact from the one-time OEM license fee in the prior year.

The decline at constant currency 1 reflected a lower population of devices (which is partially associated with lower installs in prior and current periods), an ongoing competitive price environment and lower page volumes (including a higher mix of lower average-page-volume products) that are worse than pre-COVID-19 decline trends due to the impact of business closures since March 2020.

• For the year ended December 31, 2021, these revenues decreased 2.6% as compared to the prior year, including a 1.7-percentage point favorable impact from currency, the decline at constant currency 1 reflected the impact of lower royalty revenue and lower third-party financing commissions (resulting from higher XFS lease penetration of our XBS operations), as well as a lower net population of devices, and higher mix of services with lower per-page revenues, partially offset by modestly higher page volumes corresponding with the gradual reopening of workplaces, and higher IT revenues, driven by higher demand for our offerings, partially offset by IT hardware product constraints.

• For the year ended December 31, 2020, these revenues decreased 22.3% as compared to the prior year, including a 0.2-percentage point favorable impact from currency and an approximate 1.1-percentage point unfavorable impact from the one-time OEM license fee in the prior year.

The decline at constant currency 1 reflected a lower population of devices (which is partially associated with lower installs in prior and current periods), a competitive price environment and lower page volumes (including a higher mix of lower average-page-volume products) that are worse than pre-COVID-19 decline trends due to the impact of business closures since March 2020.

While these revenues are contractual in nature, on average, our bundled services contracts include a minimum fixed charge and a significant variable component based on print volumes.

The rate of decline of these revenues moderated during third quarter 2020 (consistent with business reopenings), however, in the fourth quarter 2020, the rate of decline began to increase as a second wave of the COVID-19 virus drove new business shutdowns in certain geographical areas in the U.S.

and EMEA regions.

◦ For the year ended December 31, 2019, these revenues decreased 5.8%, including a 1.4-percentage point unfavorable impact from currency and an approximate 1.3-percentage point favorable impact from the OEM license fee.

The decline at constant currency 1 reflected the continuing trends of lower page volumes (including a higher mix of lower usage products), an ongoing competitive price environment and a lower population of devices, which are partially associated with continued lower Enterprise signings and lower installs from prior and current periods.

These declines were larger in the U.S.

during the first half as a result of organizational changes being implemented as part of our Project Own It transformation actions.

The impact began to moderate late in the second quarter, and was much less in the second half of 2019.

Supplies, paper and other sales includes unbundled supplies and other sales.

◦ For the year ended December 31, 2020, these revenues decreased 24.0%, including a 0.4-percentage point unfavorable impact from currency.

• For the year ended December 31, 2021, these revenues increased 13.1% as compared to the prior year, including a 1.6-percentage point favorable impact from currency.

This increase at constant currency 1 primarily reflected higher supplies and paper revenues consistent with the gradual reopening of workplaces, which drove higher demand.

We also saw a marginal improvement in inventories carried by channel partners, as confidence in the recovery continued to moderately improve.

Paper revenue increased $18 million in 2021 as compared to 2020.

• For the year ended December 31, 2020, these revenues decreased 24.0% as compared to the prior year, including a 0.4-percentage point unfavorable impact from currency.

The decline at constant currency 1 primarily reflected lower supplies revenues associated with lower page volume trends, partially offset by higher IT revenues from our XBS channel and from recently acquired IT dealers outside of the U.S.

The decrease in supplies was significantly impacted by lower sales through indirect channels, as resellers, in response to the lower demand caused by the pandemic, have reduced their inventory purchases to manage liquidity.

We expect that such resellers will maintain lower inventories until there is a stable recovery in sales activity.

◦ For the year ended December 31, 2019, these revenues decreased 8.7%, including a 1.3-percentage point unfavorable impact from currency.

The decline at constant currency 1 primarily reflected the impact of lower supplies revenues, primarily associated with lower page volume trends as well as the impact of lower paper sales from developing markets (primarily from the Latin America region).

Financing revenue is generated from financed equipment sale transactions.

For the year ended December 31, 2020, Financing revenue decreased 7.4%, including a 0.3-percentage point favorable impact from currency, while Financing revenue for the year ended December 31, 2019 decreased 9.0%, including a 1.5-percentage point unfavorable impact from currency.

The decline in both periods reflected a continued decline in finance receivables balance due to lower equipment sales in prior periods.

The decline in 2019 also reflected a greater mix of equipment sales to channels where our financing penetration rate and return is lower.

For the year ended December 31, 2021, Financing revenue decreased 2.2% as compared to the prior year, including a 1.9-percentage point favorable impact from currency, while Financing revenue for the year ended December 31, 2020 decreased 7.4% as compared to the prior year, including a 0.3-percentage point favorable impact from currency.

The decline at constant currency 1 reflected a lower finance receivables balance due to run-off of our lease portfolio and lower equipment sales in prior periods.

The decline in 2021 also reflected the impact of lower equipment sales in the second half of 2021.

However, lease originations increased in 2021 as compared to the prior year, primarily as a result of higher XFS (renamed FITTLE in 2022) lease penetration from our XBS sales unit.

_____________

(1) See "Currency Impact" section for description of constant currency.

Xerox 2021 Annual Report 39

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CC - See "Currency Impact" section for description of constant currency.

Equipment sales revenue decreased 24.2% for the year ended December 31, 2020 including a 0.4-percentage point favorable impact from currency as well as the impact of price declines of approximately 5%.

The COVID-19 pandemic has significantly impacted our equipment sales revenue during 2020 as a result of business closures and office building capacity restrictions that impacted our customers' purchasing decisions and caused delayed installations.

Equipment sales revenue increased 1.1% for the year ended December 31, 2021 as compared to the prior year, including a 1.5-percentage point favorable impact from currency.

The decrease at constant currency 1 in Equipment sales revenue in 2021 reflected the significant adverse impact of product supply constraints (consistent with market-wide shortages of computer chips and resins) and global freight disruptions, which were further amplified by labor shortages within the transportation industry.

Demand increased during the year as businesses reopened, resulting in a backlog of orders at the end of 2021 that was nearly 150% higher than the prior year and higher than pre-pandemic levels.

The supply chain disruption most significantly impacted the availability of our mid-range and high-end devices, causing a negative mix impact on total Equipment sales revenue.

Equipment sales revenue increased in EMEA, as the impact of supply chain disruptions was offset by higher demand from our indirect channels serving SMB, and from large government deals (in Europe and certain developing market regions).

Equipment sales revenue decreased in our Americas operations as shipping and logistics disruptions were more prevalent in the U.S.

than other markets.

We expect supply chain disruptions to affect Equipment sales revenue through the first half of 2022.

For the year ended December 31, 2020, Equipment sales revenue decreased 24.2% as compared to the prior year, including a 0.4-percentage point favorable impact from currency as well as the impact of price declines of less than 5%.

The COVID-19 pandemic significantly impacted our equipment sales revenue during 2020 as a result of business closures and office building capacity restrictions that impacted our customers' purchasing decisions and caused delayed installations.

Additionally, our mix of revenues from lower-end black-and-white devices increased as a result of hybrid workplace trends associated with the COVID-19 pandemic.

For the year ended December 31, 2019, Equipment sales decreased 5.3% including a 1.3-percentage point unfavorable impact from currency.

The decline at constant currency 1 was primarily driven by lower sales of our office-centric devices (entry and mid-range products) partially offset by higher sales of our production-centric devices (high-end) as well as the benefit of targeted price actions.

The change at constant currency 1 reflected the following:

◦ For the year ended December 31, 2020, the decrease was primarily due to lower sales of devices in our indirect channels in EMEA, Latin America and the U.S.

affected in part by the COVID-19 pandemic, partially offset by higher installs of our black-and-white devices in developing regions in EMEA, including large-order government deals in Eurasia.

◦ For the year ended December 31, 2019, the decrease reflected lower sales of devices primarily in the indirect channels in EMEA, reflecting continued weakness and delayed decisions as a result of uncertainty in the economic environment, as well as lower revenues from our indirect channels in the U.S., reflecting targeted price investments in the fourth quarter of 2019, partially offset by higher installs.

◦ For the year ended December 31, 2020, the decrease was primarily driven by the COVID-19 pandemic and related office closures, which has significantly impacted our sales through indirect channels in the U.S.

and Europe, as resellers, in response to lower demand caused by the pandemic, have reduced their inventory purchases to manage liquidity, partially offset by strong demand for our recently launched PrimeLink devices and our new generation ConnectKey devices.

◦ For the year ended December 31, 2019, the decrease reflected lower sales from our XBS sales organization, which continued to recover from the impact of organizational changes in the first half of 2019 that were implemented as part of our Project Own It transformation actions (including the transitioning of accounts to implement coverage changes, consolidation of real estate locations and reduction of management layers), as well as lower revenues from our indirect channels in the U.S.

The decrease was partially offset by higher revenues from our U.S.

Enterprise organization, which had higher activity from light-production devices associated with the recent launch of PrimeLink (an entry-level production printer) and the benefit of a large account refresh in the second half.

◦ For the year ended December 31, 2020, the decrease primarily reflected lower installs of our Versant entry-production systems and iGen production presses, as well as lower installs of our Iridesse production presses in EMEA, which were partially offset by demand for our larger Baltoro cut-sheet inkjet press and higher sales in the U.S.

• For the year ended December 31, 2021, the increase as compared to the prior year was driven by higher demand for our lower-end printers and MFPs through our indirect channels primarily in EMEA as well as in the Americas, which included markedly higher installs related to government deals in the developing regions of EMEA.

We also saw higher demand for entry devices associated with hybrid work environments.

While sales increased across this portfolio, we experienced an unfavorable mix from significantly higher sales of our lower-end black-and-white devices.

• For the year ended December 31, 2020, the increase as compared to the prior year was primarily due to higher installs of our black-and-white devices in developing regions in EMEA, including large-order government deals in Eurasia, partially offset by lower sales of devices in our indirect channels in EMEA, Latin America and the U.S.

affected in part by the COVID-19 pandemic.

• For the year ended December 31, 2021, the decrease as compared to the prior year was primarily driven by the significant impact of global product supply constraints and freight disruptions that had a more severe effect on our U.S.

These negative impacts were partially offset by higher demand consistent with the gradual reopening of workplaces, as compared to business shutdowns that reduced purchases of office devices in the prior year.

• For the year ended December 31, 2020, the decrease as compared to the prior year was primarily driven by the COVID-19 pandemic and related office closures, which significantly impacted our sales through indirect channels in the U.S.

and Europe, as resellers, in response to lower demand caused by the pandemic, reduced their inventory purchases to manage liquidity, partially offset by strong demand for our PrimeLink and new generation ConnectKey® devices.

Xerox 2021 Annual Report 40

• For the year ended December 31, 2021, the decrease as compared to the prior year primarily reflected the impact of global product supply constraints and freight disruptions, resulting in lower sales of color systems in the U.S., as well as lower sales of larger color production engines, which continued to be depressed as a result of our customers' delayed capital investment decisions.

These negative impacts were partially offset by improvement in sales of devices in the lower-end of the range and to SMB customers, as well as higher sales of black-and-white systems corresponding with our customers' refresh cycles.

• For the year ended December 31, 2020, the decrease as compared to the prior year primarily reflected lower installs of our Versant entry-production systems and iGen production presses, as well as lower installs of our Iridesse production presses in EMEA, which were partially offset by demand for our larger Baltoro cut-sheet inkjet press and higher sales in the U.S.

of our continuous-feed color systems.

◦ For the year ended December 31, 2019, the increase primarily reflected higher sales of color systems associated with continued demand for our Iridesse production press, as well as global demand for our newly-launched Baltoro inkjet press.

The increase also reflected higher revenues from our U.S.

Enterprise organization and from our indirect channels in the U.S., which was partially offset by lower revenues in EMEA, as well as lower sales from Versant (our lower-end production devices) and iGen print production systems.

_____________

(1) See "Currency Impact" section for description of constant currency.

Xerox 2020 Annual Report 41

Revenue Metrics

Installs reflect new placements of devices only (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our Xerox Services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers.

Installs include activity from Xerox Services as well as Xerox and non-Xerox branded products installed by our XBS sales unit 1 .

Detail by product group (see Geographic Sales Channels and Product and Offerings Definitions) is shown below:

Installs reflect only new placements of devices (i.e., measure does not take into account removal of devices which may occur as a result of contract renewals or cancellations).

Revenue associated with equipment installations may be reflected up-front in Equipment sales or over time either through rental income or as part of our services revenues (which are both reported within our Post sale revenues), depending on the terms and conditions of our agreements with customers.

Installs include activity for Xerox and non-Xerox branded products installed by our XBS sales unit.

Detail by product group (see Geographic Sales Channels and Products and Offerings Definitions ) is shown below.

Installs for the year ended December 31, 2021 were:

• 7% increase in color multifunction devices reflecting higher installs of color personal devices at the low-end of the portfolio and higher installs of ConnectKey® devices through our indirect channels in EMEA and North America.

• 36% increase in black-and-white multifunction devices reflecting higher activity primarily from low-end devices through indirect channels primarily from developing regions in EMEA, which included large order government deals, and in the Americas.

Mid-Range (1)

• 8% increase in mid-range color installs primarily in EMEA, reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function printers, as well as our PrimeLink entry-production color devices.

• 7% increase in mid-range black-and-white installs reflecting higher installs of our recently launched new-generation of ConnectKey® multi-function devices, as well as our PrimeLink entry production black-and-white devices.

• 12% increase in high-end color installs reflecting primarily growth from our lower-end Versant devices as well as our Iridesse and iGen production systems.

• 19% increase in high-end black-and-white systems reflecting higher installs of our Nuvera devices primarily related to cyclical account refreshes in the U.S and EMEA.

Installs for the year ended December 31, 2020 were:

• 21% decrease in color multifunction devices reflecting lower installs of ConnectKey® devices through our indirect channels in the U.S.

3 unchanged sentences

• 22% decrease in mid-range black-and-white installs reflecting in part global market trends, partially offset by strong demand for our recently launched PrimeLink light-production multi-function devices and our new generation of ConnectKey® multifunction devices.

Xerox 2021 Annual Report 41

• 42% decrease in high-end color installs primarily reflecting lower installs of our lower-end Versant devices, along with lower installs of our Iridesse and iGen production systems, partially offset by strong demand for our Baltoro cut-sheet inkjet press and higher installs in the U.S.

1 unchanged sentence

• 13% decrease in high-end black-and-white systems reflecting lower installs of our Nuvera devices along with market trends.

Installs 1 for the year ended December 31, 2019 were:

• Color multifunction devices were flat, reflecting higher installs of ConnectKey products primarily from our indirect channels in the U.S., offset by lower installs of devices from EMEA.

• 4% decrease in black-and-white multifunction devices, reflecting lower activity primarily from U.S.

Enterprise and EMEA, as well as from our developing regions in the Americas, partially offset by higher activity from our indirect channels in Canada, as well as XBS.

Mid-Range (2)

• 7% decrease in mid-range color installs, primarily reflecting lower installs of multifunction color devices through our U.S.

enterprise, partially offset by higher installs of light-production devices that sit at the higher end of the portfolio range.

• 17% decrease in mid-range black-and-white, reflecting, in part, global market trends.

• 4% decrease in high-end color installs primarily reflecting lower activity from iGen and Versant production systems, partially offset by global demand for our newly-launched Baltoro inkjet press and continued strong demand for our Iridesse production press.

• 14% decrease in high-end black-and-white systems reflecting global market trends.

_____________

(1) During fourth quarter 2020, we revised the measurement of total installs to include installations of Xerox and non-Xerox branded devices made directly by our XBS sales unit.

Previously, total installs were based on intercompany transfers of devices to XBS and was limited to Xerox-branded devices only.

Although the overall impact from the change was not material, we believe the new measurement basis provides a stronger connection between Equipment sales revenues and installations.

See Equipment Installs - Measurement Methodology Update for the revision of prior quarters in 2020 based on the new methodology.

Installs growth rates for 2019 were not revised and are presented on the previously reported basis.

(2) Mid-range and High-end color installations exclude Fuji Xerox digital front-end sales;

including Fuji Xerox digital front-end sales, Mid-range color devices decreased 26% and 7% for the years ended December 31, 2020 and 2019, respectively, while High-end color systems decreased 42% and 4% for the years ended December 31, 2020 and 2019, respectively.

Xerox 2020 Annual Report 42

(1) Mid-range and High-end color installations exclude FUJIFILM Business Innovation Corp.

digital front-end sales;

including FUJIFILM Business Innovation Corp.

digital front-end sales, Mid-range color devices increased 8% and decreased 26% for the years ended December 31, 2021 and 2020, respectively, while High-end color systems increased 12% and decreased 42% for the years ended December 31, 2021 and 2020, respectively.

Geographic Sales Channels and Product and Offerings Definitions

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• EMEA, which includes our sales channels in Europe, the Middle East, Africa and India.

• Other, primarily includes sales to and royalties from Fuji Xerox, and our licensing revenue.

• Other, primarily includes sales to and royalties from FUJIFILM Business Innovation Corp., and our licensing revenue.

Our products and offerings include:

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Prices for these systems can range from approximately $30,000 to $1,000,000+.

• Xerox Services, which includes solutions and services that span from managing print to automating processes to managing content.

Our primary offerings are Intelligent Workplace Services (IWS), as well as Digital and Cloud Print Services (including centralized print services) and Communications and Marketing Solutions.

Equipment Installs - Measurement Methodology Update

In the fourth quarter 2020, we updated our equipment installation measurement methodology to reflect the following:

i) activity from our XBS sales unit based on the timing of installations, whereas prior to this methodology update XBS activity was based on units shipped to the XBS sales unit, and (ii) installations of non-Xerox branded devices by our XBS sales unit, which, although not material, are included in equipment sales.

Entry installations exclude OEM sales;

Mid-range and High-end color installations exclude Fuji Xerox digital front-end sales.

2020 Installs % Change YOY

As Reported Updated Methodology

Q1 Q2 Q3 Q1 Q2 Q3 Q4 FY

Entry A4 MFPs

Color (20) % (35) % (9) % (19) % (33) % (9) % (22) % (21) %

B&W 2 % (9) % 52 % 3 % (8) % 54 % 28 % 20 %

Color (26) % (46) % (21) % (26) % (42) % (19) % (20) % (26) %

B&W (14) % (42) % (19) % (16) % (35) % (20) % (16) % (22) %

Color (52) % (58) % (38) % (50) % (55) % (39) % (26) % (42) %

B&W (25) % 2 % (13) % (30) % (2) % (13) % (6) % (13) %

Equipment Sales Revenue - Classification Update

During first quarter 2021, we revised the classification of equipment sales revenue by category for our XBS sales unit to conform the classification of devices across Xerox sales channels.

The revision had no impact on reported total equipment sales revenue.

For the Year ended December 31, 2020

(in millions) As Reported Change As Revised

Entry $ 188 $ 40 $ 228

Mid-range 1,043 (57) 986

High-end 312 13 325

Other 21 4 25

Equipment Sales $ 1,564 $ — $ 1,564

Xerox 2021 Annual Report 42

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SAG as a % of Revenue 24.4 % 26.4 % 23.0 % 2.0 pts.

Pre-tax Income $ 252 $ 822 $ 549 $ (570) $ 273

Pre-tax Income Margin 3.6 % 9.1 % 5.7 % (5.5) pts.

Pre-tax (Loss) Income (1)

$ (475) $ 252 $ 822 $ (727) $ (570)

Pre-tax (Loss) Income Margin (1)

(6.7) % 3.6 % 9.1 % (10.3) pts.

Adjusted (2) Operating Profit

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_____________

(1) 2021 includes a pre-tax non-cash Goodwill impairment charge of $781 million.

(2) Refer to the "Non-GAAP Financial Measures" section for an explanation of the non-GAAP financial measure.

Pre-tax Income Margin

Pre-tax (Loss) Income Margin

Pre-tax loss margin for the year ended December 31, 2021 of (6.7)% decreased 10.3-percentage points from the pre-tax income margin of 3.6% in 2020.

The decrease primarily reflected the non-cash Goodwill impairment charge of $781 million ($750 million after-tax), and the impact of lower adjusted 1 operating margin (see below), of 1.3-percentage points, partially offset by lower Restructuring and related costs, net, Transaction and related costs, net and Other expenses, net.

Pre-tax income margin for the year ended December 31, 2020 of 3.6% decreased 5.5-percentage points compared to 2019.

The decrease primarily reflected the impact of lower adjusted 1 operating margin (see below), of 6.5-percentage points, as well as higher Amortization of intangible assets and Transaction and related cost, net, partially offset by lower Restructuring and related costs, net and Other expenses, net.

Pre-tax income margin for the year ended December 31, 2019 of 9.1% increased 3.4-percentage points compared to 2018, reflecting the impact of higher adjusted 1 operating margin (see below), of 1.8-percentage points, which included an approximate 0.7-percentage point favorable impact from the $77 million OEM license fee.

The increase also reflected the impact of lower Other expenses, net and Transactions and related costs, net.

These benefits were partially offset by higher Restructuring and related costs, net.

Transaction currency had a 0.3-percentage point unfavorable impact.

Pre-tax income margin includes Restructuring and related costs, net, the Amortization of intangible assets, Transaction and related costs, net and Other expenses, net , all of which are separately discussed in subsequent sections.

Pre-tax (loss) income margin includes Restructuring and related costs, net, the Amortization of intangible assets, Transaction and related costs, net and Other expenses, net , all of which are separately discussed in subsequent sections.

Adjusted 1 Operating margin, discussed below, excludes these items.

2021 Adjusted 1 Operating margin also excludes the non-cash Goodwill impairment charge of $781 million ($750 million after-tax).

Adjusted 1 Operating Margin

Adjusted 1 operating margin for the year ended December 31, 2021 of 5.3% decreased 1.3-percentage points compared to 2020.

The decrease reflects the impact of lower revenues, primarily as a result of the significant effect of the COVID-19 pandemic on our business and a 0.9-percentage point unfavorable impact due to an increase in bad debt expense of $61 million in the first quarter of 2020 to reflect the expected impact to our customer base and related outstanding trade and finance receivable portfolio as a result of the economic disruption caused by the pandemic.

The decrease primarily reflects an approximate 1.5-percentage point negative impact of supply chain disruptions, including higher shipping and logistics costs, and an unfavorable mix of equipment revenue due to product constraints, as well as a negative 0.4-percentage points from lower royalty revenue from FUJIFILM Business Innovation Corp.

Adjusted 1 operating margin also reflected an approximate 1.1-percentage point negative impact of lower savings from temporary government assistance and furlough measures, and an approximate 0.7-percentage point unfavorable impact from lower third-party lease commissions and incremental costs associated with investments to support future growth.

These unfavorable factors were partially offset by an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year, reflecting the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic.

Additionally, cost and expense reductions associated with our Project Own It transformation actions, favorably impacted adjusted 1 operating margin.

Adjusted 1 operating margin for the year ended December 31, 2020 of 6.6% decreased 6.5-percentage points as compared to 2019.

Xerox 2021 Annual Report 43

These negative impacts were partially offset by lower costs and expenses, which include savings associated with our Project Own It transformation actions as well as additional savings from various cost reductions actions to mitigate the impact of the pandemic.

These actions include approximately $107 million from temporary government assistance measures and furlough programs (see the Government Assistance and Furlough Programs section for additional details) and other reductions in discretionary spending such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of 401(k) matching contributions for the year 2020, as well as lower compensation incentives consistent with lower sales and operating results.

These actions include approximately $107 million from temporary government assistance measures and furlough programs and other reductions in discretionary spending such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of 401(k) matching contributions for the year 2020, as well as lower compensation incentives consistent with lower sales and operating results.

The decrease also included an approximate 0.4-percentage point unfavorable impact from transaction currency and was affected by an approximate 0.7-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

Adjusted 1 operating margin for the year ended December 31, 2019 of 13.1% increased 1.8-percentage points as compared to 2018, primarily reflecting an approximate 0.7-percentage point favorable impact from the $77 million OEM license fee, as well as the impact of cost and expense reductions associated with our Project Own It

Xerox 2020 Annual Report 44

transformation actions, which more than offset the pace of revenue decline.

The increase also reflected a $44 million favorable impact from higher costs in the prior year related to the exit of a surplus real estate facility and the termination of certain IT projects.

Adjusted 1 operating margin also included a 0.3-percentage point unfavorable impact from transaction currency.

_____________

(1) Refer to Operating Income and Margin reconciliation table in the "Non-GAAP Financial Measures" section.

Total gross margin for the year ended December 31, 2020 of 37.4% decreased 2.9-percentage points compared to 2019, reflecting the impact of lower revenues (including from our higher margin post sale stream) primarily as a result of the significant effect of the COVID-19 pandemic due to business closures, as well as price promotion programs, and an approximate 0.5-percentage point adverse combined impact from transaction currency and higher tariffs.

Total gross margin for the year ended December 31, 2021 of 34.1% decreased 3.3-percentage points compared to 2020, reflecting unfavorable impacts of approximately 1.5-percentage points associated with supply chain costs and capacity restrictions (including significantly higher freight and shipping costs and constrained availability of higher margin equipment) and 0.8-percentage points associated with investments to support future growth.

The remainder of the decline reflects the impact of lower savings from temporary government assistance and furlough measures, lower royalty revenue from FUJIFILM Business Innovation Corp.

and higher mix of services with lower per-page revenues.

These headwinds were partially offset by the cost savings from our Project Own It transformation actions.

Total gross margin for the year ended December 31, 2020 of 37.4% decreased 2.9-percentage points compared to 2019, primarily reflecting the impact of lower revenues (including from our higher margin post sale stream) primarily as a result of the significant effect of the COVID-19 pandemic due to business closures, as well as price promotion programs, and an approximate 0.5-percentage point adverse combined impact from transaction currency and higher tariffs.

The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

These headwinds were partially offset by the cost savings from our Project Own It transformation actions, as well as additional cost reduction actions to mitigate the impact of the pandemic, including savings of approximately $74 million from temporary government assistance measures and furlough programs and other reductions in discretionary spend such as the use of contract employees and the temporary suspension of 401(k) matching contributions.

Total gross margin for the year ended December 31, 2019 of 40.3% increased 0.3-percentage points compared to 2018, primarily reflecting an approximate 0.6-percentage point favorable impact from the $77 million OEM license fee, as well as an unfavorable impact from transaction currency of 0.3-percentage points.

Gross margin also reflects cost reductions from our business transformation actions as part of Project Own It, which were entirely offset by the impact of targeted pricing actions.

Equipment gross margin for the year ended December 31, 2021 of 24.2% decreased 3.2-percentage points compared to 2020, primarily reflecting the impact of higher transportation costs and an unfavorable mix of growth in low-end devices associated with product supply constraints, partially offset by higher revenues and favorable transaction currency.

Equipment gross margin for the year ended December 31, 2020 of 27.4% decreased 5.2-percentage points compared to 2019, primarily reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures) as well as the adverse impact of price promotion programs, incremental tariff costs and the 0.6-percentage point unfavorable impact from transaction currency partially offset by cost reductions from Project Own It.

Equipment gross margin for the year ended December 31, 2019 of 32.6% decreased 1.3-percentage points compared to 2018, primarily as a result of targeted pricing actions, which were partially offset by savings from cost productivity, as well as a more profitable mix of revenues from the higher end of the portfolio.

Equipment gross margin included the unfavorable impact from transaction currency of 0.8-percentage points.

Post sale gross margin for the year ended December 31, 2021 of 37.0% decreased 3.3-percentage points compared to 2020, reflecting lower savings from temporary government assistance and furlough measures, lower royalty revenues and third-party lease commissions and a higher mix of services with lower per-page revenues, partially offset by restructuring savings associated with Project Own It transformation actions.

Post sale gross margin for the year ended December 31, 2020 of 40.3% decreased 2.2-percentage points compared to 2019, reflecting the impact of lower revenues (primarily as a result of COVID-19-related business closures impacting page volumes) and price erosion on contract renewals, partially offset by productivity and cost savings and restructuring savings associated with Project Own It transformation actions, as well as savings from our additional cost reduction actions to mitigate the impact of the pandemic.

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The decrease was also affected by an approximate 0.6-percentage point unfavorable impact from the one-time OEM license fee received in the prior year.

Post sale gross margin for the year ended December 31, 2019 of 42.5% increased 0.7-percentage points compared to 2018, including an approximate 0.6-percentage point favorable impact from the $77 million OEM license fee, as well as cost reductions from our business transformation actions, offset by lower revenues and lower pricing on contract renewals.

Xerox 2021 Annual Report 44

Research, Development and Engineering Expenses (RD&E)

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Total RD&E Expenses $ 310 $ 311 $ 373 $ (1) $ (62)

RD&E as a percentage of revenue for the year ended December 31, 2021 of 4.4% was flat as compared to 2020.

RD&E of $310 million for the year ended December 31, 2021, decreased $1 million from 2020, primarily reflecting savings from restructuring and productivity as well as benefits from the timing of program development cycles, partially offset by investments in our innovation portfolio.

RD&E as a percentage of revenue for the year ended December 31, 2020 of 4.4% was 0.3-percentage points higher compared to 2019, as the impact of revenue declines outpaced the rate of cost reductions.

Xerox 2020 Annual Report 45

RD&E of $311 million for the year ended December 31, 2020, decreased $62 million from 2019 reflecting savings from Project Own It that enhanced simplification and rationalization in our core technology spend, and other temporary cost actions, as well as the impact from the timing of investments, partially offset by higher spend in our innovation areas.

RD&E as a percentage of revenue for the year ended December 31, 2019 of 4.1% was flat compared to 2018.

RD&E of $373 million for the year ended December 31, 2019 decreased $24 million from 2018 reflecting cost reductions from our Project Own It transformation actions, including lower sustaining engineering expenses, partially offset by modest investments in innovation in complementary market areas.

Selling, Administrative and General Expenses (SAG)

SAG as a percentage of revenue of 24.4% decreased 2.0-percentage points for the year ended December 31, 2021 compared to 2020 primarily as a result of an approximate 1.5-percentage point favorable impact from lower bad debt expense due to a higher provision in the prior year to reflect the expected impact to our trade and finance receivable portfolio from the COVID-19 pandemic as well as bad debt reversals in the current year.

The remaining decrease was primarily due to the impact of lower selling expenses, as a result of cost savings and restructuring associated with our Project Own It transformation actions, and savings from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs and employee benefit programs).

SAG expenses of $1,718 million for the year ended December 31, 2021 were $133 million lower than 2020, primarily reflecting lower bad debt expenses, as well as cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic (including reductions in discretionary spend such as near-term targeted marketing programs), partially offset by an approximate $30 million adverse impact from translation currency, higher compensation related accruals (corresponding with higher expected operating results) and other investments in the business to support future growth, as well as the impact of lower benefits from temporary government assistance and furlough measures and higher legal expenses and expenses from prior year acquisitions.

Our bad debt expense for the year ended December 31, 2021 of $7 million decreased $109 million as compared to the prior year period, primarily due to the prior year reflecting an approximate $60 million incremental provision to cover estimated write-offs primarily on our finance receivable portfolio from the COVID-19 pandemic, while 2021 reflected finance receivable reserve reductions of approximately $31 million and lower reserves for trade receivables.

The 2021 reductions in our finance and trade reserves reflect improvements in the macroeconomic environment as well as lower write-offs.

Although actual finance receivable write-offs incurred to date continued to lag expectations, we believe our current reserve position remains sufficient to cover expected future losses that may result from future economic conditions.

We continue to monitor developments regarding the pandemic, including business closures and reopenings and mitigating government support actions as well as future economic conditions, and as a result our reserves may need to be updated in future periods.

On a trailing twelve-month basis (TTM), bad debt expense was approximately 0.9% percent of total receivables (excluding the 2021 reductions of $31 million), which is consistent with the pre-pandemic trend and reflects the consistent level of reserves subsequent to the first quarter 2020 charge.

SAG as a percentage of revenue of 26.4% increased 3.4-percentage points for the year ended December 31, 2020 compared to 2019 and included a 0.9-percentage point unfavorable impact due to the increase in bad debt expense of $61 million in the first quarter 2020.

The increase also reflected the impact of lower revenues, partially offset by the benefits from cost reductions associated with our Project Own It transformation actions and savings from additional cost reduction actions to mitigate the impact of the pandemic.

These actions included approximately $32 million from temporary government assistance measures and furlough programs, and other reductions in discretionary spend such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of the 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

Xerox 2021 Annual Report 45

temporary suspension of the 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

SAG expenses of $1,851 million for the year ended December 31, 2020 were $234 million lower than 2019, reflecting cost savings and restructuring savings associated with our Project Own It transformation actions and from additional cost reduction actions to mitigate the impact of the pandemic, as noted above.

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Bad debt expense for the year ended December 31, 2020 was $116 million or $70 million higher than the prior year primarily as a result of the increase in the bad debt provision recorded in first quarter 2020, which reflects the estimated impact on our customer base and related outstanding receivables portfolio as a result of the economic disruption caused by the COVID-19 pandemic.

The majority of the increased provision is related to finance receivables due to their larger balance and longer-term nature.

The majority of the increased provision was related to finance receivables due to their larger balance and longer-term nature.

During the remainder of 2020, write-offs as well as the bad debt reserves for our trade and finance receivables portfolios were in line with our projections and consistent with future expectations regarding our estimated impacts from the COVID-19 pandemic.

We continue to monitor developments regarding the pandemic, including business closures and mitigating government support actions and as a result our reserves may need to be updated in future periods.

Bad debt expense of approximately 2.7% percent of total gross receivables on a trailing-twelve-month basis (TTM) was higher than the 2019 trend of less than one percent, reflecting the significant increase in 2020 due to impacts from the COVID-19 pandemic.

SAG as a percentage of revenue of 23.0% decreased 1.6-percentage points for the year ended December 31, 2019 compared to 2018 primarily reflecting expense reductions from our business transformation actions.

The decrease in SAG as a percentage of revenue includes the benefit from a 0.4-percentage point unfavorable impact from the exit of a real estate facility and the cancellation of certain IT projects in 2018.

SAG expenses of $2,085 million for the year ended December 31, 2019 were $294 million lower than 2018, including an approximate $30 million unfavorable impact from currency.

The decrease primarily reflected expense reductions from our Project Own It transformation actions as well as lower compensation expense;

the reduction also includes the favorable impact of $44 million higher costs in 2018 related to the accelerated depreciation associated with the exit of a surplus real estate facility and the termination of certain IT projects.

Bad debt expense for the year ended December 31, 2019 was $46 million or $10 million higher than the prior year primarily due to an increased level of sales-type leases as a result of our adoption of ASC Topic 842 - Leases and associated changes in the collectibility assessment of certain leases as well as an increased mix of high-end equipment sales (Refer to Note 4 - Lessor in the Consolidated Financial Statements for additional information regarding our adoption of ASC 842).

On a trailing twelve-month basis (TTM), bad debt expense remained at less than one percent of total receivables.

Xerox 2020 Annual Report 46

Restructuring and Related Costs, Net

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Restructuring and severance costs (1)

Asset impairments (2)

$ 30 $ 107 $ 81

Asset impairments - leased right-of-use assets (2)

Asset impairments - owned assets (2)

Other contractual termination costs (3)

Net reversals (4)

(21) (29) (34)

Restructuring and asset impairment costs 27 87 127

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(1) Reflects headcount reductions of approximately 400, 1,850 and 1,000 employees worldwide for the years ended December 31, 2021, 2020 and 2019, respectively.

(2) Primarily related to the exit and abandonment of leased and owned facilities.

For the years ended December 31, 2020 and 2019 , the charge includes the accelerated write-off of $4 million and $39 million, respectively, for leased right-of-use assets and $2 million and $22 million, respectively, for owned assets, upon exit from the facilities, net of any potential sublease income and other recoveries.

(2) Primarily related to the exit and abandonment of leased and owned facilities, net of any potential sublease income and other recoveries.

(3) Primarily includes additional costs incurred upon the exit from our facilities including decommissioning costs and associated contractual termination costs.

(4) Reflects net reversals for changes in estimated reserves from prior period initiatives.

Net reversals for 2021 also include a $4 million gain on the sale of surplus land.

(5) Includes retention related severance and bonuses for employees expected to continue working beyond their minimum retention period before termination.

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(7) Represents professional support services associated with our business transformation initiatives.

Restructuring and asset impairment costs were $116 million for the year ended December 31, 2020 and included $107 million of severance costs related to headcount reductions of approximately 1,850 employees worldwide, $3 million of other contractual termination costs and $6 million of asset impairment charges.

These costs were partially offset by $29 million of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives.

2020 actions impacted several functional areas, with approximately 55% focused on gross margin improvements and approximately 45% focused on SAG reductions.

2021 actions impacted several functional areas, with approximately 25% focused on gross margin improvements and approximately 70% focused on SAG reductions, and the remainder focused on RD&E optimizations.

We expect 2022 pre-tax savings of approximately $15 million from our 2021 restructuring actions.

Restructuring and asset impairment costs were $161 million for the year ended December 31, 2019 and included $81 million of severance costs related to headcount reductions of approximately 1,000 employees worldwide, $19 million of other contractual termination costs and $61 million of asset impairment charges.

These costs were partially offset by $34 million of net reversals, primarily resulting from changes in estimated reserves from prior period initiatives as well as $10 million in favorable adjustments from the early termination of prior period impaired leases.

2019 actions impacted several functional areas, with approximately 15% focused on gross margin improvements, approximately 80% focused on SAG reductions, and the remainder focused on RD&E optimization.

2020 actions impacted several functional areas, with approximately 55% focused on gross margin improvements and approximately 45% focused on SAG reductions.

The implementation of our Project Own It initiatives as well as other business transformation initiatives is expected to continue to deliver significant cost savings in 2022.

While many initiatives are underway and have yet to yield the full transformation benefits expected upon their completion, the changes implemented thus far have improved our cost structure and are beginning to yield longer-term benefits.

However, expected savings associated with these initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized.

However, expected savings associated with these

Xerox 2021 Annual Report 46

initiatives may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until the initiatives are fully implemented and stabilized.

Restructuring Summary

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Transaction and Related Costs, Net

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain strategic M&A projects.

Transaction and related costs, net, were $18 million in 2020 as compared to $12 million incurred in 2019.

Transaction and related costs, net, were $68 million in 2018 and reflect costs related to the proposed combination

transaction with Fuji Xerox including financing costs and costs associated with litigation that resulted from the proposed transaction, which was terminated in May 2018.

These costs were partially offset by insurance recoveries and a settlement refund from a financial adviser that had been associated with the terminated transaction.

We continue to pursue additional recoveries from insurance carriers and other parties for costs and expenses related to the terminated transaction and therefore additional recoveries and adjustments may be recorded in future periods, when finalized.

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain major and strategic M&A projects.

There were no Transaction and related costs, net incurred during 2021 as compared to $18 million incurred in 2020 and $12 million in 2019.

Transaction and related costs, net in 2020 primarily related to legal and other professional costs associated with the terminated proposal to acquire HP Inc.

in early 2020.

Amortization of Intangible Assets

Amortization of intangible assets for the three years ended December 31, 2021 , 2020 and 2019 was $55 million, $56 million and $45 million, respectively.

The increase of $11 million in 2020 as compared to 2019 was primarily due to the accelerated write-off of certain XBS tradenames as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It, as well as the impact from intangible assets recorded on the partner dealer acquisitions in 2020.

The decrease of $3 million in 2019 as compared to 2018, was primarily the result of a lower level of acquisitions in prior years, and was partially offset by the accelerated write-off of trade names associated with our realignment and consolidation of certain XBS sales units as part of Project Own It.

The increased level of amortization in 2021 and 2020 was primarily due to intangible assets associated with our 2021 and 2020 acquisitions.

Additionally, the increase in amortization of $11 million in 2020 as compared to 2019 was primarily due to the accelerated write-off of certain XBS tradenames as part of our continued efforts to realign and consolidate this sales unit as part of Project Own It.

Refer to Note 13 - Goodwill and Intangible Assets, Net in the Consolidated Financial Statements for additional information regarding our intangible assets.

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The reduction resulted from net attrition (attrition net of gross hires), a large portion of which is not expected to be backfilled, as well as the impact of organizational changes.

_____________

(1) Decrease based on revised headcount at December 31, 2020 of 25,100 from 24,700 due to the change in definition of full-time equivalent

Other Expenses, Net

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Non-financing interest expense

Non-financing interest expense for the year ended December 31, 2021 of $96 million was $2 million higher than 2020.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense of $207 million decreased by $8 million from the prior year period primarily reflecting a lower average debt balance.

Non-financing interest expense for the year ended December 31, 2020 of $94 million was $11 million lower than 2019.

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Xerox 2021 Annual Report 47

Both Xerox Holdings and Xerox reported total interest expense of $215 million, however, the amount reported by Xerox includes $32 million of interest paid to Xerox Holdings as reimbursement for the interest expense incurred on the Xerox Holdings Corporation Senior Notes as the net proceeds from those notes were contributed in full to Xerox and used to repay existing debt of Xerox Corporation.

Non-financing interest expense for the year ended December 31, 2019 of $105 million was $9 million lower than 2018.

When non-financing interest expense is combined with financing interest expense (Cost of financing), total interest expense decreased by $10 million from the prior year.

The decrease is primarily due to a lower debt balance reflecting the repayment of approximately $960 million of debt maturing in 2019 that was not refinanced.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity as well as information regarding the allocation of interest expense.

For the years ended December 31, 2021 and 2020 both Xerox Holdings and Xerox reported total interest expense of $207 million and $215 million, respectively, however, the amount reported by Xerox includes $80 million and $32 million, respectively, of interest paid to Xerox Holdings on an Intercompany Loan.

The Intercompany Loan represents a loan of the net proceeds Xerox Holdings Corporation received from its Senior Notes to Xerox, which was used to repay existing debt of Xerox Corporation.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding the Xerox Holdings Corporation/Xerox Corporation Intercompany Loan, our debt activity and information regarding the allocation of interest expense.

Interest Income

Interest income for the year ended December 31, 2021 was $10 million lower than 2020, primarily due to lower interest rates and a lower cash balance.

Non-service retirement-related costs

Non-service retirement-related costs decreased $60 million for the year ended December 31, 2021 as compared to 2020 primarily driven by lower discount rates and higher expected returns on plan assets due to higher asset balances.

Non-service retirement-related costs decreased $47 million for the year ended December 31, 2020 as compared to 2019 primarily driven by lower losses from pension settlements in the U.S.

of $53 million, a $40 million decrease compared to 2019.

Non-service retirement-related costs decreased $132 million for the year ended December 31, 2019 as compared to the prior year primarily due to the favorable impact of a 2018 amendment to our U.S.

Retiree Health Plan and lower losses from pension settlements in the U.S.

of $93 million, an $80 million decrease compared to the prior year.

Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding non-service retirement-related costs.

Gains on sales of businesses and assets

The gains on sales of businesses and assets in all periods reflect the sales of non-core business assets.

Gains on sales of businesses and assets increased $10 million and $9 million for the years ended December 31, 2021 and 2020, respectively, as compared to the respective prior year periods, and reflect the sales of non-core business assets in all periods presented.

Loss on early extinguishment of debt

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The net loss included the payment of a redemption premium of $24 million as well as the write-off of unamortized debt issuance costs and other debt carrying value adjustments.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity.

Litigation matters

Litigation matters for the year ended December 31, 2020 were $7 million higher as compared to 2019 and $9 million lower for the year ended December 31, 2019, as compared to 2018.

The year-over-year changes reflect the favorable resolution of certain litigation matters in 2019.

Contract termination costs - IT services

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The adjustments in 2020 and 2019 reflect changes in the estimate regarding the expected spending in the run-off of this terminated IT services arrangement and the amount due under the minimum purchase agreement.

The commitment was settled in 2020 for approximately $34 million.

The minimum purchase commitment had originally been entered into in connection with the sale of our Information Technology Outsourcing (ITO) business in 2015.

Tax indemnification from Conduent

Represents an indemnification payment expected to be received from Conduent as part of the settlement of pre-separation unrecognized tax positions related to Conduent when included in of our consolidated return.

The equal and offsetting charge to this receipt is recorded in Income tax expense, as part of our obligation to pay the taxing authorities.

The 2021 effective tax rate was 3.6%.

On an adjusted 1 basis, the 2021 effective tax rate was 6.5%.

Both rates were lower than the U.S.

statutory tax rate of 21% primarily due to the benefits from tax law changes, additional incentives as a result of changes in elections made with the filed tax returns, the decrease in deferred tax valuation allowances as well as the remeasurement of uncertain tax positions.

The adjusted 1 effective tax rate also reflects partial offsets for the geographical mix of earnings.

The adjusted 1 effective tax rate excludes the tax impacts associated with the following charges:

non-cash Goodwill impairment, Restructuring and related costs, net,

Xerox 2021 Annual Report 48

Amortization of intangible assets and non-service retirement-related costs, as described in our Non-GAAP Financial Measures section.

The 2020 effective tax rate was 25.4%.

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Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs as well as other discrete, unusual or infrequent items as described in our Non-GAAP Financial Measures section.

The 2018 effective tax rate was 45.0% and included a charge of $89 million related to the 2017 Tax Act.

On an adjusted 1 basis, the 2018 effective tax rate was 27.0%.

Both rates were higher than the U.S.

statutory tax rate of 21% primarily due to the geographical mix of earnings.

In addition to excluding the impact of the Tax Act, the adjusted 1 effective tax rate excludes the tax impacts associated with the following charges:

Xerox operations are widely dispersed.

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In addition, our effective tax rate will change based on discrete or other nonrecurring events that may not be predictable.

Excluding the effects of the Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net, non-service retirement-related costs and other discrete items, we anticipate that our adjusted 1 effective tax rate will be approximately 26% to 29% for full year 2021.

_____________

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Accordingly, our remaining Investment in Affiliates, at Equity largely consists of several minor investments in entities in the Middle East region.

Refer to Note 6 - Divestitures, in the Consolidated Financial Statements for additional information regarding the sale Fuji Xerox.

Year Ended December 31,

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The equity in net income for Fuji Xerox in 2019 is through the date of sale.

For the year ended December 31, 2019 equity income from Fuji Xerox increased $122 million as compared to 2018, primarily due to lower restructuring costs of $75 million as well as an out-of-period adjustment of $28 million in 2018.

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding the sale of Fuji Xerox.

Refer to Note 12 - Investment in Affiliates, at Equity in the Consolidated Financial Statements for additional information regarding our equity investments.

Net (Loss) Income from Continuing Operations

Net loss from continuing operations attributable to Xerox Holdings for the year ended December 31, 2021 was $(455) million, or $(2.56) per diluted share, which includes an after-tax Goodwill impairment charge of $750 million (pre-tax charge of $781 million) or ($4.08) per share.

On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $293 million, or $1.51 per diluted share, and includes adjustments for the Goodwill impairment charge, Restructuring and related costs, net, Amortization of intangible assets, as well as non-service retirement-related costs and other discrete, unusual or infrequent items, as described in our Non-GAAP Financial Measures.

Xerox 2021 Annual Report 49

Net Income from Continuing Operations

Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2020 was $192 million, or $0.84 per diluted share.

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On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $828 million, or $3.55 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, including the impact from the Tax Act, as described in our Non-GAAP Financial Measures.

Net income from continuing operations attributable to Xerox Holdings for the year ended December 31, 2018 was $306 million, or $1.16 per diluted share.

On an adjusted 1 basis, Net income from continuing operations attributable to Xerox Holdings was $745 million, or $2.88 per diluted share, and includes adjustments for Restructuring and related costs, net, Amortization of intangible assets, Transaction and related costs, net as well as non-service retirement-related costs and other discrete, unusual or infrequent items, including the impact from the Tax Act, as described in our Non-GAAP Financial Measures.

Refer to Note 26 - Earnings per Share in the Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share.

Refer to Note 26 - (Loss) Earnings per Share in the Consolidated Financial Statements, for additional information regarding the calculation of basic and diluted earnings per share.

_____________

(1) Refer to the Net Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section.

(1) Refer to the Net (Loss) Income and EPS reconciliation table in the "Non-GAAP Financial Measures" section.

Discontinued Operations

Discontinued operations relate to the November 2019 Sales of our indirect 25% equity interest in Fuji Xerox (FX) and our indirect 51% partnership interest in Xerox International Partners (XIP), which had been consolidated.

Discontinued operations relate to the November 2019 Sales of our indirect 25% equity interest in Fuji Xerox and our indirect 51% partnership interest in Xerox International Partners (XIP), which had been consolidated.

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding discontinued operations.

Other Comprehensive Income

The historical statement of Comprehensive Income was not revised to reflect the Sales of our investments in Fuji Xerox and XIP and instead reflects discontinued operations as a final adjustment to the Accumulated Other Comprehensive Loss (AOCL) balances at December 31, 2019.

Accordingly, all reported amounts in 2018 reflect movements in AOCL for both continuing operations and discontinued operations.

Refer to Note 6 - Divestitures in the Consolidated Financial Statements for additional information regarding discontinued operations.

Other comprehensive income attributable to Xerox was $344 million in 2021 and included the following:

i) $489 million of net gains from the changes in defined benefit plans primarily due to remeasurement and net actuarial gains as a result of higher discount rates, as well as the favorable impact of currency;

ii) $141 million of net translation adjustment losses reflecting the weakening of our major foreign currencies against the U.S.

Dollar during 2021;

and iii) $4 million in unrealized losses, net.

Other comprehensive income attributable to Xerox was $314 million in 2020 and included the following:

i) net translation adjustment gains of $241 million reflecting the strengthening of our major foreign currencies against the U.S.

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and iii) $6 million in unrealized losses, net.

Other comprehensive income attributable to Xerox was $183 million in 2018 and included the following:

i) $409 million of net gains from the changes in defined benefit plans primarily due to prior service credits resulting from an amendment to our U.S.

and Canadian Retiree Health plans, settlements and the positive impacts from currency on accumulated net actuarial losses, as well as a $43 million out-of-period pension adjustment (refer to Note 1 - Basis

Xerox 2020 Annual Report 51

of Presentation and Summary of Significant Accounting Policies in the Consolidated Financial Statements for additional information on the out-of-period adjustment);

ii) $16 million in unrealized gains, net, and iii) net translation adjustment losses of $242 million reflecting the weakening of most of our major foreign currencies against the U.S.

Refer to our discussion of Pension Plan Assumptions in the Application of Critical Accounting Policies section of the MD&A as well as Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding changes in our defined benefit plans.

Refer to Note 17 - Financial Instruments in the Consolidated Financial Statements for additional information regarding our foreign currency derivatives and associated unrealized gains and losses.

Xerox 2021 Annual Report 50

New Business Strategy/Segment Reporting

In January 2021 we announced our intention to stand up our Software, Financing and Innovation businesses as separate units by 2022.

During 2021, the operations and financial results for these units continued to be primarily managed by and reported in our “go-to-market” (GTM) sales channels and we did not have discrete and complete financial information for these new businesses.

Accordingly, the chief operating decision maker (CODM) continued to manage the Company’s operations, including the products and services from these new units, primarily through the GTM sales channels and as a result, we continued to have one operating and reportable segment.

Based on our efforts in 2021, as of year-end these new businesses have largely been stood-up as separate units and we will proceed with these efforts in 2022 and provide additional information related to these businesses during the year.

Accordingly, as a result of this effort, we will be reassessing our operating and reportable segments in 2022 and a revision of our segment reporting is expected in 2022.

Recent Accounting Pronouncements

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Capital Resources and Liquidity

Our 2020 financial results were significantly impacted by COVID-19 related business closures and office building capacity restrictions that slowed our customers' purchasing decisions and caused delayed installations and lower printing volumes on our devices.

However, we believe we have sufficient liquidity to manage our business through the economic disruption caused by this pandemic:

• A majority of our business is contractually based and our bundled services contracts, on average, include not only a variable component linked to print volumes, but also a fixed minimum, which provides us with a continuing stream of operating cash flow.

Our liquidity is primarily dependent on our ability to continue to generate positive cash flows from operations.

Additional liquidity is also provided through access to the financial capital markets and through secured borrowings on our finance receivable balances.

Our 2021 financial results continued to be impacted by the ongoing COVID-19 pandemic and those impacts are expected to continue at least through the first half of 2022.

However, we believe we have sufficient liquidity to manage the business through the economic disruption caused by this pandemic.

The following is a summary of our liquidity position:

• As of December 31, 2021 and 2020, total cash, cash equivalents and restricted cash were $1,909 million and $2,691 million, respectively, and apart from restricted cash of $69 million and $66 million, respectively, was readily accessible for use.

• As of December 31, 2020 and 2019, there were no borrowings or letters of credit outstanding under our $1.8 billion Credit Facility that matures in August 2022.

In connection with the issuance of our $1.5 billion of new Senior Notes in August 2020, we amended the Credit Facility debt covenants to consider our level of cash on hand as part of our principal debt balance.

• In fourth quarter, we completed the early redemption of Xerox Corporation's $1.1 billion Senior Notes due May 2021.

We have utilized a combination of capital markets financing and securitization to refinance all 2020 and 2021 debt maturities, significantly reducing our near-term debt commitments and improving our long-term liquidity.

• We have focused our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic.

These actions include the use of available temporary government assistance measures and furlough programs and the reduction of discretionary spend such as near-term targeted marketing programs, the use of contract employees and the temporary suspension of 401(k) matching contributions, as well as lower compensation incentives consistent with lower sales and operating results.

• We expect operating cash flows from continuing operations to be approximately $600 million in 2021, reflecting the continued negative impacts of the COVID-19 pandemic.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding debt activity in 2020.

• As of December 31, 2021 and 2020, there were no borrowings or letters of credit outstanding under our $1.8 billion Credit Facility.

The Credit Facility, which terminates in August 2022, contains various investment grade covenants at a time when the Company is not investment grade rated.

The Company may seek to renegotiate or replace such facility, including reducing the size of such facility, or may determine not to replace such facility at all and may instead pursue other forms of liquidity.

Any new credit agreement may result in higher borrowing costs and may contain non-investment grade covenants, such as those that would place greater restrictions on how the Company can run its businesses and/or limit the Company from taking certain actions that might otherwise be beneficial to the Company and/or its shareholders, customers, suppliers, partners and/or lenders.

• We continue to focus our efforts on incremental actions to prioritize and preserve cash as we manage through the pandemic.

• We expect operating cash flows from continuing operations to be approximately $475 million in 2022, reflecting increased investment across each of our new businesses as well as the absence of the upfront prepaid fixed royalty from FX of $100 million.

Additionally, we expect that capital expenditures will be approximately $75 million.

Cash Flow Analysis

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Cash, Cash Equivalents and Restricted Cash at End of Year $ 1,909 $ 2,691 $ 2,795 $ (782) $ (104)

Xerox 2020 Annual Report 53

Cash Flows from Operating Activities

Net cash provided by operating activities of continuing operations was $629 million for the year ended December 31, 2021.

The $81 million increase in operating cash from 2020 was primarily due to the following:

• $211 million decrease in pre-tax income before depreciation and amortization, provisions, goodwill impairment, restructuring and related costs, net and defined benefit pension costs.

• $241 million increase from accounts payable primarily due to higher spending as compared to the prior year and the timing of supplier and vendor payments.

• $222 million increase from inventory primarily due to significant cash usage in 2020 as inventory levels increased because of lower demand resulting from the COVID-19 pandemic.

Xerox 2021 Annual Report 52

• $136 million increase in other current and long-term liabilities, reflecting higher accruals from the increased level of operations as compared to the prior year.

• $94 million increase from accrued compensation primarily related to higher employee incentive accruals and year-over-year timing of employee incentive payments.

• $57 million net increase primarily due to the receipt of an upfront prepaid fixed royalty from FX of $100 million for their continued use of the Xerox brand trademark subsequent to the termination of our technology agreement with them.

• $22 million increase primarily due to lower payments for restructuring and related costs.

• $328 million decrease from accounts receivable primarily due to a lower year-over-year decline in revenues as well as the timing of collections.

• $163 million decrease from a lower net run-off of finance receivables due to an increased level of direct lease originations from our XBS sales unit as well as higher equipment sales.

Net cash provided by operating activities of continuing operations was $548 million for the year ended December 31, 2020.

The $696 million decrease in operating cash from 2019 was primarily due to the following:

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• $57 million increase from net taxes primarily due to lower payments in 2020 as a result of lower pre-tax income.

• $51 million increase primarily due to lower restructuring and related costs, net as compared to the prior year.

Net cash provided by operating activities of continuing operations was $1,244 million for the year ended December 31, 2019.

The $162 million increase in operating cash from 2018 was primarily due to the following:

• $95 million increase due to lower placements of equipment on operating leases.

• $92 million increase primarily due to lower levels of inventories partially reflecting lower sales volume and improved inventory management.

• $58 million increase from the after-tax impact of the OEM license agreement with FX.

• $47 million increase due to lower net payments for transaction and related costs as current year payments are primarily limited to costs related to on-going litigation.

• $65 million decrease due to a lower net run-off of finance receivables.

• $54 million decrease from the change in accounts payable primarily related to lower inventory and other spending as well as the year-over-year timing of supplier and vendor payments.

• $21 million decrease from accounts receivable primarily due to the timing of invoicing and collections.

• $51 million increase primarily due to lower payments for restructuring and related costs.

Cash Flows from Investing Activities

Net cash used in investing activities of continuing operations for Xerox Holdings was $85 million for the year ended December 31, 2021.

The $161 million change in cash from 2019 was primarily due to four acquisitions completed by Xerox for $194 million and one additional acquisition completed by Xerox Holdings of $9 million in the current year compared to two acquisitions in the prior year for $42 million.

Net cash used in investing activities of continuing operations was $85 million for the year ended December 31, 2019.

The $161 million change in cash from 2020 was primarily due to the following:

• $42 million decrease from acquisitions.

• $38 million decrease due to lower proceeds from the sales of assets.

• $25 million increase reflecting lower capital expenditures.

• $150 million change due to three acquisitions completed in the current year for $53 million as compared to five acquisitions in the prior year for $203 million.

• $11 million increase due to proceeds from the sales of non-core business assets of $38 million in the current year as compared to $27 million in the prior year.

• Other investing, net of Xerox Holdings includes $8 million of noncontrolling investments as part of our corporate venture capital fund.

Net cash used in investing activities of continuing operations was $246 million for the year ended December 31, 2020.

The $161 million change in cash from 2019 was primarily due to five acquisitions completed for $203 million in the current year compared to two acquisitions in the prior year for $42 million.

Cash Flows from Financing Activities

Net cash used in financing activities for Xerox Holdings was $1,310 million for the year ended December 31, 2021.

The $894 million increase in the use of cash from 2020 was primarily due to the following:

• $588 million increase due to share repurchases in the current year of $888 million compared to share repurchases in the prior year of $300 million.

• $341 million increase from net debt activity.

2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement.

2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $16 million of deferred debt issuance costs offset by proceeds of $1,507 million from a Senior Notes offering and $840 million from secured financing arrangements.

• $24 million decrease due to lower common stock dividends due to lower outstanding shares.

Xerox 2021 Annual Report 53

• Other financing, net includes receipts for noncontrolling investments of $5 million in Eloque, a joint venture for the remote monitoring of critical infrastructure assets and $10 million in CareAR Holdings LLC, a newly formed software business.

Net cash used in financing activities for Xerox was $1,318 million for the year ended December 31, 2021.

2021 reflects payments of $518 million on secured financing arrangements and $1 million of deferred debt issuance costs offset by proceeds of $311 million on a new secured financing arrangement.

2020 reflects payments of $2,137 million on Senior Notes, $73 million for secured financing arrangements and $3 million of deferred debt issuance costs offset by proceeds of $840 million from secured financing arrangements.

Distributions to Xerox Holdings were $1,120 million and were primarily used to fund Xerox Holdings continuing dividends to shareholders and share repurchases.

Xerox's distributions to the parent are expected to continue with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases.

Net cash used in financing activities for Xerox Holdings was $416 million for the year ended December 31, 2020.

The $1,418 million decrease in the use of cash from 2019 was primarily due to the following:

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• $11 million decrease from lower distributions of noncontrolling interests.

Xerox 2020 Annual Report 54

Net cash used in financing activities for Xerox was $416 million for the year ended December 31, 2020.

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Contributions from parent of $1,494 million primarily represent the contribution by Xerox Holdings of aggregate net debt proceeds received from its Senior Note offerings in the third quarter of 2020 to Xerox.

Net cash used in financing activities for Xerox Holdings, on a consolidated basis, was $1,834 million for the year ended December 31, 2019.

The $533 million increase in the use of cash from 2018 was primarily due to the following:

• $643 million increase from net debt activity.

2019 reflects payments of $960 million on Senior Notes compared to prior year payments of $265 million on Senior Notes, $25 million related to the termination of a capital lease obligation and $19 million of bridge facility costs.

• $26 million decrease due to lower common stock dividends.

• $100 million decrease from lower share repurchases due to timing.

Net cash used in financing activities for Xerox, on a consolidated basis, was $1,834 million for the year ended December 31, 2019.

Dividends of $181 million and share repurchases of $300 million were through the date of the holding company reorganization, July 31, 2019.

Distributions to Xerox Holdings were $373 million and are subsequent to the date of the reorganization and are primarily to fund Xerox Holdings continuing dividends to shareholders and share repurchases.

Xerox's distributions to the parent are expected to continue on a regular basis in the future with those distributions primarily being used by Xerox Holdings to fund dividends and share repurchases.

Cash, Cash Equivalents and Restricted Cash

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Additionally, we have identified embedded operating leases within certain supply chain contracts for warehouses, primarily within our domestic operations.

Our leases have remaining terms of up to twelve years and a variety of renewal and/or termination options.

Our leases have remaining terms of up to eleven years and a variety of renewal and/or termination options.

As of December 31, 2021 and 2020, total operating lease liabilities were $283 million and $333 million, respectively.

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Subtotal - Principal debt balance (2)

$ 4,467 $ 4,313

Debt issuance costs

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Subtotal - Debt issuance costs (18) (27)

Net unamortized discount (premium) 3 (16)

Net unamortized premium 3 3

Fair value adjustments (3)

- terminated swaps — 1

- current swaps — 1

Total Debt $ 4,246 $ 4,444

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Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity.

Credit Rating Downgrade

As a result of the downgrade of our debt ratings in February 2022 by one of the rating agencies, the coupon rate on our $1.0 billion Senior Notes due 2023 of 4.375% will increase by 0.25% to 4.625% effective March 15, 2022.

Finance Assets and Related Debt

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(1) Includes (i) Billed portion of finance receivables, net, (ii) Finance receivables, net and (iii) Finance receivables due after one year, net as included in our Consolidated Balance Sheets.

(2) The change from December 31, 2019 includes an increase of $96 million due to currency.

(2) The change from December 31, 2020 includes a decrease of $74 million due to currency.

Xerox 2021 Annual Report 55

Our lease contracts permit customers to pay for equipment over time rather than at the date of installation;

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For this financing aspect of our business, we maintain an assumed 7:1 leverage ratio of debt to equity as compared to our finance assets.

Approximately 35% of our Total Finance assets, net balance at December 31, 2020 include lease financing provided to end-user customers who purchased equipment sold through distributors, resellers and dealers.

Xerox 2020 Annual Report 56

Approximately 35% of our Total Finance assets, net balance at December 31, 2021 include indirect lease financing primarily provided to end-user customers who purchased equipment sold through distributors, resellers and dealers.

Based on this leverage, the following represents the breakdown of total debt between financing debt and core debt:

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_____________

(1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of Income.

(1) Finance receivables debt is the basis for our calculation of “Cost of financing” expense in the Consolidated Statements of (Loss) Income.

At December 31, 2021, leverage was assessed against the Total Debt of Xerox Holdings Corporation and Xerox Corporation since the debt held by Xerox Holdings Corporation is guaranteed by Xerox Corporation and the funds from that borrowing were contributed in full by Xerox Holdings Corporation to Xerox Corporation.

In 2022, we expect to continue leveraging our finance assets on a Total Debt basis at an assumed 7:1 ratio of debt to equity.

Capital Market Activity

During 2020 we repaid $2,113 million of Xerox Corporation's Senior Notes maturing in 2020 and 2021 and issued $1.5 billion in a Senior Notes offering and received $840 million from secured financing arrangements.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity.

Capital Market/Debt Activity

During 2021 we received $311 million from a secured financing arrangement.

The secured loan was an amendment of the July 2020 secured borrowing with the same financial institution, which had a remaining balance of $136 million, and we received the incremental net cash.

Refer to Note 16 - Debt in the Consolidated Financial Statements for additional information regarding our debt activity, as well as Note 27 - Subsequent Events in the Consolidated Financial Statements for additional information related to our secured financing arrangements.

Financial Instruments

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Share Repurchase Programs - Treasury Stock

During 2020, Xerox Holdings repurchased 15.6 million shares of our common stock for an aggregate cost of $300 million, including fees.

In January 2021, the Xerox Holdings Corporation's Board of Directors authorized an additional $100 million of share repurchase authority, bringing the total authorization of the existing share repurchase program to $1.1 billion (exclusive of any commissions and other transaction fees and costs related thereto).

The cumulative total of shares repurchased by Xerox Holdings under the current share repurchase program that commenced in July 2019 is 24.7 million shares for an aggregate cost of $600 million, including fees, leaving a remaining authorization of $500 million.

During 2019, Xerox Holdings repurchased 9.1 million shares of our common stock for an aggregate cost of $300 million, including fees.

Including the shares repurchased under Xerox Corporation's previously authorized share repurchase program, Xerox Holdings repurchased 18.3 million shares of our common stock for an aggregate cost of $600 million, including fees, during 2019.

During 2018, Xerox Corporation repurchased 26.1 million shares of our common stock for an aggregate cost of $700 million, including fees.

These shares were repurchased under Xerox Corporation's previously authorized share repurchase program, which was cancelled upon the reorganization of Xerox Corporation's corporate structure into a holding company structure on July 31, 2019.

Refer to Note 23 - Shareholders' Equity in the Consolidated Financial Statements for additional information regarding our share repurchase program.

In January 2021, the Xerox Holdings Corporation's Board of Directors authorized an additional $100 million of share repurchase authority, bringing the total authorization of its original share repurchase program, initiated in July 2019, to $1.1 billion (exclusive of any commissions and other transaction fees and costs related thereto).

In October 2021, the Xerox Holdings Corporation's Board of Directors authorized a $500 million share repurchase program (exclusive of any commissions and other transaction fees and costs related thereto).

This program replaced the approximate $450 thousand of authority remaining under Xerox Holdings Corporation's previously authorized $1.1 billion share repurchase program.

During 2021, Xerox Holdings Corporation repurchased 19.4 million shares of our common stock for an aggregate cost of approximately $388 million, including fees.

The remaining authorization at December 31, 2021 is approximately $113 million.

Xerox 2021 Annual Report 56

Including the shares repurchased under Xerox Holdings Corporation's current and previously authorized share repurchase programs in 2021, Xerox Holdings Corporation repurchased 40.2 million shares of our common stock for an aggregate cost of approximately $888 million, including fees.

During 2020, Xerox Holdings Corporation repurchased 15.6 million shares of our common stock for an aggregate cost of $300 million, including fees.

During 2019, Xerox Holdings Corporation repurchased 9.1 million shares of our common stock for an aggregate cost of $300 million, including fees.

Including the shares repurchased under Xerox Corporation's previously authorized share repurchase program, Xerox Holdings Corporation repurchased 18.3 million shares of our common stock for an aggregate cost of $600 million, including fees, during 2019.

Refer to Note 23 - Shareholders' Equity in the Consolidated Financial Statements for additional information regarding our share repurchase program.

Aggregate dividends of $181 million, $209 million and $226 million were declared on common stock in 2021, 2020 and 2019, respectively.

The decrease in dividends since 2019 primarily reflects lower shares of common stock outstanding as a result of our share repurchase programs.

Aggregate dividends of $14 million in 2020, 2019 and 2018, respectively, were declared on preferred stock.

Aggregate dividends of $14 million were declared on preferred stock in 2021, 2020 and 2019, respectively.

Liquidity and Financial Flexibility

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2025 750 — — 750

2027 and thereafter 750 600 — 1,350

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Estimated Purchase Commitments:

Fuji Xerox (3)

FUJIFILM Business Innovation Corp.

1,180 — — — — —

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36 33 29 26 25 14

150 87 25 19 10 —

Total $ 2,808 $ 1,739 $ 757 $ 1,134 $ 205 $ 1,958

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(2) Refer to Note 11 – Lessee in the Consolidated Financial Statements for additional information related to minimum operating lease commitments.

(3) Fuji Xerox:

(3) FUJIFILM Business Innovation Corp.:

The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment.

Refer to Note 12 - Investments in Affiliates, at Equity in the Consolidated Financial Statements for additional information related to transactions with Fuji Xerox.

We outsource certain manufacturing activities to Flex.

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Shared services arrangement with HCL Technologies.

Shared services arrangement with Tata Consulting Services.

(7) Other purchase commitments:

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Contributions to our defined benefit pension plans in subsequent years will depend on a number of factors, including the investment performance of plan assets and discount rates as well as potential legislative and plan changes.

At December 31, 2020, the net unfunded balance of our U.S.

defined benefit pension plans was $945 million and the net funded balance of our Non-U.S.

defined benefit pension plans was $40 million, or an aggregate unfunded balance of $905 million, which is a $307 million decrease from the balance at December 31, 2019.

The decrease is primarily due to contributions and favorable asset returns as compared to expected returns, partially offset by lower discount rates.

Approximately $851 million of the $905 million net unfunded balance is attributable to certain plans that by design do not require or allow for advanced funding.

The remaining net deficit in funded plans of $54 million includes an under-funded position for our U.S.

Primary Plans of $606 million and $552 million of net over funded positions for our international plans (primarily in the U.K.).

At December 31, 2021, the net unfunded balance of our defined benefit pension plans was $119 million, which is a $786 million decrease from the balance at December 31, 2020.

The decrease is primarily due to contributions, favorable asset returns and higher discount rates, which lowered the benefit obligation.

The $119 million net unfunded position at December 31, 2021 includes the following:

• $(763) million for certain unfunded plans that by design do not require or allow for advanced funding.

• $(571) million for under-funded plans, primarily our U.S.

tax qualified plans ($512 million under-funded).

• $1,215 million for over-funded plans, primarily our U.K.

plan ($1,044 million over-funded).

Cash contributions to our retiree health plans are made each year to cover medical claims costs incurred during the year.

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Our retiree health benefit plans are non-funded and are primarily related to domestic operations.

The unfunded balance of our retiree health plans of $370 million at December 31, 2020 decreased $15 million from the balance at December 31, 2019.

The unfunded balance of our retiree health plans of $303 million at December 31, 2021 decreased $67 million from the balance at December 31, 2020 primarily due to a plan amendment to our U.S.

Retiree Health plan, which reduced future benefits and the benefit obligation by approximately $50 million, as well as benefit payments and higher discount rates.

Refer to Note 19 - Employee Benefit Plans in the Consolidated Financial Statements for additional information regarding contributions to our defined benefit pension and retiree health plans.

Xerox 2021 Annual Report 58

As previously disclosed, in November 2019, Xerox Holdings completed the sale of its indirect 25% equity interest in Fuji Xerox (FX).

Arrangements with FX whereby we purchase inventory from and sell inventory to FX continued after the sale.

We purchased products, including parts and supplies, from FX totaling $1.1 billion, $1.3 billion and $1.5 billion in 2020, 2019 and 2018, respectively.

Our product supply agreements with Fuji Xerox are designed to support the entire product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout the time such products are with our customers.

FUJIFILM Business Innovation Corp.

As previously disclosed, in November 2019, Xerox Holdings completed the sale of its indirect 25% equity interest in Fuji Xerox (now known as FUJIFILM Business Innovation Corp.).

However, arrangements with FUJIFILM Business Innovation Corp.

whereby we purchase inventory from and sell inventory to FUJIFILM Business Innovation Corp.

continued after the sale.

We purchased products, including parts and supplies, from FUJIFILM Business Innovation Corp.

totaling $966 million, $1.1 billion and $1.3 billion in 2021, 2020 and 2019, respectively.

Our product supply agreements with FUJIFILM Business Innovation Corp.

are designed to support the entire product lifecycle, end-to-end, including the availability of spare parts, consumables and technical support throughout the time such products are with our customers.

Our purchase orders under such agreements are made in the normal course of business and typically have a lead time of three months.

Transactions with Fuji Xerox are discussed further in Note 12 - Investments in Affiliates, at Equity in the Consolidated Financial Statements.

Shared Services Arrangement with HCL Technologies

Shared Services Arrangements

This transition was expected to be completed during 2020, however, it sustained some delays caused by the COVID-19 pandemic, and it is now expected to be finalized by the end of 2021.

HCL is expected to make certain ongoing investments in software, tools and other technology to consolidate, optimize and automate the transferred functions with the goal of providing improved service levels and significant cost savings.

The shared services arrangement with HCL includes a remaining aggregate spending commitment of approximately $829 million over the next 5 years.

However, we can terminate the arrangement at any time at our discretion, subject to payment of termination fees that decline over the term, or for cause.

We incurred net charges of approximately $185 million for the year ended December 31, 2020 associated with this arrangement.

The cost has been allocated to the various functional expense lines in the Consolidated Statements of Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions prior to their transfer to HCL.

In July 2021, Xerox entered into an arrangement with Tata Consulting Services (TCS), whereby TCS will provide business processing outsourcing services in support of our global finance organization.

This included the transition of all the finance processes currently being provided by HCL.

These activities started to transition during the third quarter 2021 and were completed in fourth quarter 2021.

The transition does not impact our minimum revenue commitments to HCL and will result in all of our finance business processing outsourcing services being provided by one vendor.

TCS will leverage their existing technology and make additional investments as required to consolidate, optimize and automate the supported services with the goal of providing improved service levels and cost savings.

The arrangement is initially for 6 years with a total contract value of approximately $163 million.

We can terminate the arrangement subject to payment of termination fees that decline over the term.

We incurred net charges of $207 million and $185 million for the years ended December 31, 2021 and 2020, respectively, related to these shared services arrangements.

The cost has been allocated to the various functional expense lines in the Consolidated Statements of (Loss) Income based on an assessment of the nature and amount of the costs incurred for the various transferred functions prior to their transfer to HCL and TCS.

Brazil Contingencies

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Liens on Brazilian assets — —

The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily related to closed cases.

The decrease in the unreserved portion of the tax contingency, inclusive of any related interest, was primarily related to closed cases and currency, partially offset by interest.

With respect to the unreserved tax contingency, the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company.

In connection with the above proceedings, customary local regulations may require us to make escrow cash deposits or post other security of up to half of the total amount in dispute, as well as additional surety bonds and letters of credit, which include associated indexation.

Xerox 2021 Annual Report 59

and letters of credit, which include associated indexation.

Generally, any escrowed amounts would be refundable and any liens on assets would be removed to the extent the matters are resolved in our favor.

We are also involved in certain disputes with contract and former employees.

Exposures related to labor matters are not material to the financial statements as of December 31, 2020.

Exposures related to labor matters are not material to the financial statements as of December 31, 2021 and 2020.

We routinely assess all these matters as to probability of ultimately incurring a liability against our Brazilian operations and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.

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and other laws and regulations.

In addition, guarantees, indemnifications and claims may arise during the ordinary course of business from relationships with suppliers,

Xerox 2020 Annual Report 60

customers and non-consolidated affiliates.

In addition, guarantees, indemnifications and claims may arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates.

Nonperformance under a contract including a guarantee, indemnification or claim could trigger an obligation of the Company.

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Accordingly, we believe it is necessary to adjust several reported amounts, determined in accordance with GAAP, to exclude the effects of certain items as well as their related income tax effects.

A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below in the following tables.

Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are set forth below in the following tables.

These non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.

Adjusted Earnings Measures

• Net income and Earnings per share (EPS)

• Net (Loss) income and Earnings per share (EPS)

• Effective tax rate

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Transaction and related costs, net:

Transaction and related costs, net primarily reflect costs from third party providers for professional services associated with certain strategic M&A projects.

These costs and expense are primarily for third-party legal, accounting, consulting and other similar type professional services as well as costs associated with potential legal actions or matters that may arise in connection with those M&A transactions.

Transaction and related costs, net are costs and expenses primarily associated with certain strategic M&A projects.

These costs are primarily for third-party legal, accounting, consulting and other similar type professional services as well as potential legal settlements that may arise in connection with those M&A transactions.

These costs are considered incremental to our normal operating charges and were incurred or are expected to be incurred solely as a result of the planned transactions.

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Adjusted earnings will continue to include the service cost elements of our retirement costs, which is related to current employee service as well as the cost of our defined contribution plans.

Xerox 2020 Annual Report 62

Other discrete, unusual or infrequent items:

In addition, we have also excluded the following items given their discrete, unusual or infrequent nature and their impact on our results for the period:

• Contract termination costs - IT services.

We excluded the following items given their discrete, unusual or infrequent nature and their impact on our results for the period:

• Non-cash Goodwill impairment charge.

• Losses on early extinguishment of debt.

• Contract termination costs - IT services.

• Impacts associated with the Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017.

Xerox 2021 Annual Report 61

We believe the exclusion of these items allows investors to better understand and analyze the results for the period as compared to prior periods and expected future trends in our business.

Adjusted Operating Income and Margin

We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax income and margin amounts.

In addition to the costs and expenses noted as adjustments for our Adjusted Earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses.

We calculate and utilize adjusted operating income and margin measures by adjusting our reported pre-tax (loss) income and margin amounts.

In addition to the costs and expenses noted above as adjustments for our adjusted earnings measures, adjusted operating income and margin also exclude the remaining amounts included in Other expenses, net, which are primarily non-financing interest expense and certain other non-operating costs and expenses.

We exclude these amounts in order to evaluate our current and past operating performance and to better understand the expected future trends in our business.

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Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.

Net Income and EPS reconciliation

Net (Loss) Income and EPS reconciliation

Year Ended December 31,

2021 2020 2019

(in millions, except per share amounts) Net Income EPS Net Income EPS Net Income EPS

(in millions, except per share amounts) Net (Loss) Income EPS Net Income EPS Net Income EPS

$ (455) $ (2.56) $ 192 $ 0.84 $ 648 $ 2.78

Goodwill impairment 781 — —

Restructuring and related costs, net 38 93 229

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Dividends on preferred stock used in adjusted EPS calculation (3)

$ 14 $ 14 $ —

Weighted average shares for adjusted EPS (3)

Fully diluted shares at December 31, 2020 (4)

Estimated fully diluted shares at December 31, 2021 (4)

_____________

(1) Net income and EPS from continuing operations attributable to Xerox Holdings.

(1) Net (loss) income and EPS from continuing operations attributable to Xerox Holdings.

2021 Net (loss) and EPS include an after-tax non-cash goodwill impairment charge of $750 million or $4.08 per share.

(2) Refer to Effective Tax Rate reconciliation.

(3) For those periods that exclude the preferred stock dividend, the average shares for the calculations of diluted EPS include 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock, as applicable.

(4) Represents common shares outstanding at December 31, 2020 as well as shares associated with Xerox Holdings Corporation's Series A convertible preferred stock plus potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the year ended December 31, 2020.

(3) For those periods that include the preferred stock dividend, the average shares for the calculations of diluted EPS exclude the 7 million shares associated with Xerox Holdings Corporation's Series A Convertible preferred stock.

(4) Represents common shares outstanding at December 31, 2021 plus potential dilutive common shares used for the calculation of adjusted diluted earnings per share for the year ended December 31, 2021.

The amount excludes shares associated with Xerox Holdings Corporation's Series A convertible preferred stock as they were anti-dilutive.

Xerox 2021 Annual Report 62

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(in millions) Pre-Tax

Income Income Tax

Expense Effective

(Loss) Income Income Tax

(Benefit) Expense Effective

Tax Rate Pre-Tax Income Income Tax

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$ (475) $ (17) 3.6 % $ 252 $ 64 25.4 % $ 822 $ 179 21.8 %

Goodwill impairment (2)

781 31 — — — —

Non-GAAP Adjustments (2)

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_____________

(1) Pre-tax Income and Income tax expense from continuing operations.

(2) Refer to Net Income and EPS reconciliation for details.

(3) The tax impact on Adjusted Pre-Tax Income from continuing operations is calculated under the same accounting principles applied to the Reported Pre-Tax Income under ASC 740, which employs an annual effective tax rate method to the results.

Operating Income and Margin reconciliation

(1) Pre-tax (Loss) Income and Income tax (benefit) expense from continuing operations.

(2) Refer to Net (Loss) Income and EPS reconciliation for details.

(3) The tax impact on Adjusted Pre-Tax Income from continuing operations is calculated under the same accounting principles applied to the Reported Pre-Tax (Loss) Income under ASC 740, which employs an annual effective tax rate method to the results.

Operating (Loss) Income and Margin reconciliation

Year Ended December 31,

2021 2020 2019

(in millions) Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin

(in millions) (Loss) Profit Revenue Margin Profit Revenue Margin Profit Revenue Margin

$ (475) $ 7,038 (6.7) % $ 252 $ 7,022 3.6 % $ 822 $ 9,066 9.1 %

Goodwill impairment 781 — —

Restructuring and related costs, net 38 93 229

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_____________

(1) Pre-tax Income and revenue from continuing operations.

(1) Pre-tax (Loss) Income and revenue from continuing operations.

(2) Includes non-service retirement-related costs of $(89) million, $(29) million and $18 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis